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Quota Use under VERs: A theoretical framework and some evidence on MFA quota use

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  • Shumei Gao
  • Jihe Song
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    Abstract

    In this paper, we propose a framework to study quota use under Voluntary Export Restraints (VERs). Our model unifies three strands of literature in finance and international trade policy research: the equivalence between tariff and quotas/VERs, option pricing, and option exercise. We also present evidence on quota utilisation rates for clothing exports under the Multi-Fibre Arrangement (MFA) from the most important Asian suppliers to the EU.

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    File URL: http://www.sml.hw.ac.uk/documents/dp2004-e03.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, School of Management and Languages, Heriot Watt University in its series Working Papers with number E03.

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    Date of creation: 2004
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    Handle: RePEc:hwe:hwecwp:2004-e03

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    Postal: Edinburgh EH14 4AS
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    Fax: +44(0)131 451 3497
    Web page: http://www.sml.hw.ac.uk/departments/accountancy-economics-finance.htm
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    Related research

    Keywords: VERs; quota use; option-pricing; first passage time;

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    1. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
    2. Cunha, Luis Campos e & Santos, Vasco, 1996. "Sleeping quotas, pre-emptive quota bidding and monopoly power," Journal of International Economics, Elsevier, vol. 40(1-2), pages 127-148, February.
    3. Murray, Tracy & Schmidt, Wilson & Walter, Ingo, 1983. "On the equivalence of import quotas and voluntary export restraint," Journal of International Economics, Elsevier, vol. 14(1-2), pages 191-194, February.
    4. repec:fth:geneec:93.07 is not listed on IDEAS
    5. Faini, R. & Melo, J. de & Takacs, W., 1992. "A Primer on the MFA Maze," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 92.15, Institut d'Economie et Econométrie, Université de Genève.
    6. Trela, Irene & Whalley, John, 1995. "Internal Quota-Allocation Schemes and the Costs of the MFA," Review of International Economics, Wiley Blackwell, vol. 3(3), pages 284-306, October.
    7. Hamilton, Carl, 1986. "An Assessment of Voluntary Restraints on Hong Kong Exports to Europe and the USA," Economica, London School of Economics and Political Science, vol. 53(211), pages 339-50, August.
    8. Krishna, Kala, 1993. "Theoretical Implications of Imperfect Competition on Quota License Prices and Auctions," World Bank Economic Review, World Bank Group, vol. 7(1), pages 113-36, January.
    9. Robert C. Feenstra, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-178, Summer.
    10. Barbara J. Spencer, 1996. "Quota Licenses for Imported Capital Equipment: Could Bureaucrats Ever DoBetter than the Market?," NBER Working Papers 5695, National Bureau of Economic Research, Inc.
    11. Falvey, Rodney E, 1979. "The Composition of Trade within Import-restricted Product Categories," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1105-14, October.
    12. Krishna, Kala, 1990. "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," American Economic Review, American Economic Association, vol. 80(4), pages 828-36, September.
    13. Richard Harris, 1984. "Why Voluntary Export Restraints are 'Voluntary'," Working Papers 559, Queen's University, Department of Economics.
    14. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.
    15. Eldor, Rafael & Marcus, Alan J., 1988. "Quotas as options: Valuation and equilibrium implications," Journal of International Economics, Elsevier, vol. 24(3-4), pages 255-274, May.
    16. Anderson, James E., 1987. "Quotas as options: Optimality and quota license pricing under uncertainty," Journal of International Economics, Elsevier, vol. 23(1-2), pages 21-39, August.
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