Endogenous Choice of Trade Instrument Under Uncertainty
AbstractThis Paper endogenizes the choice between import tariffs and quotas of two policy active countries in a duopsonistic world market. Without uncertainty, import quotas are welfare superior to import tariffs in equilibrium. If two importers can precommit to a type of instrument before deciding the level of the instrument to use in a future period, an import quota equilibrium emerges. We introduce asymmetric risk in the import demand schedule of the two importers. There exists a range of parameters in which a mixed equilibrium emerges, i.e. one country uses a tariff while the other restricts trade with an import quota. The likelihood that both importers choose a different trade instrument in equilibrium is increasing with the correlation coefficient of the two random shocks. [F13]
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal International Economic Journal.
Volume (Year): 16 (2002)
Issue (Month): 4 ()
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Other versions of this item:
- Gervais, Jean-Philippe & Lapan, Harvey E., 2002. "Endogenous Choice of Trade Instrument Under Uncertainty," Staff General Research Papers 5135, Iowa State University, Department of Economics.
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