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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

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.

Suggested Citation

  • Shumei Gao & Jihe Song, 2004. "Quota Use under VERs: A theoretical framework and some evidence on MFA quota use," Working Papers E03, Department of Economics, School of Management and Languages, Heriot Watt University.
    • Handle: RePEc:hwe:hwecwp:2004-e03
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    References listed on IDEAS

    as
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    8. 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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    More about this item

    Keywords

    VERs; quota use; option-pricing; first passage time;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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