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Trade policy with endogenous entry revisited

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  • Krishna, Kala
  • Tan, Ling Hui

Abstract

This paper revisits the effects of tariffs and quotas in a competitive setting where three results are thought to hold. These are: that quotas are equivalent to specific tariffs, the form of tariffs--specific or ad valorem--does not matter, and that the way in which a quota is allocated has no real effects as it only affects the allocation of rents, not their size. We show that all three of these results are false when entry/exit is endogenous. Equivalence holds only if the initial level of entry is set at the long-run level under the quota.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 80 (2010)
Issue (Month): 2 (March)
Pages: 271-279

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Handle: RePEc:eee:inecon:v:80:y:2010:i:2:p:271-279

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Web page: http://www.elsevier.com/locate/inca/505552

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  1. Moschini, Giancarlo, 1991. "Economic issues in tariffication: an overview," Agricultural Economics, Blackwell, vol. 5(2), pages 101-120, June.
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  3. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
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  5. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  7. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  8. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  9. Jan Jørgensen & Philipp Schröder, 2005. "Welfare-ranking ad valorem and specific tariffs under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 228-241, February.
  10. Kala Krishna, 1990. "Export Restraints With Imperfect Competition: A Selective Survey," NBER Working Papers 3244, National Bureau of Economic Research, Inc.
  11. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
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