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Voluntary Trade Restraints and Economic Welfare

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  • Kotaro Suzumura
  • Jota Ishikawa

Abstract

The purpose of this paper is to examine the welfare implications of voluntary trade restraints in the context of duopoly with product differentiation. It is shown that, irrespective of whether firms compete in quantities or prices, a voluntary export restraint (VER) set at the free trade equilibrium level of foreign exports lowers domestic welfare if and only if it induces the foreign firm to comply voluntarily with the VER. We also examine the welfare implications of a voluntary import expansion (VIE), which is the import side counterpart of a VER. It is shown that the imposition of a VIE is at least as harmful as the imposition of a VER from the point of view of social welfare.

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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number a272.

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Date of creation: Mar 1993
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Handle: RePEc:hit:hituec:a272

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Cited by:
  1. Calzolari, Giacomo & Lambertini, Luca, 2007. "Export restraints in a model of trade with capital accumulation," Journal of Economic Dynamics and Control, Elsevier, vol. 31(12), pages 3822-3842, December.

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