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

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Author Info
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.

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

Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

References listed on IDEAS
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  1. 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. [Downloadable!] (restricted)
    Other versions:
  2. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March. [Downloadable!] (restricted)
  3. Richard Harris, 1985. "Why Voluntary Export Restraints Are 'Voluntary.'," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 799-809, November. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. Faini, R. & Melo, J. de & Takacs, W., 1992. "A Primer on the MFA Maze," University of Geneva Economics Working Papers 93.07, University of Geneva, Department of Political Economy.
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  9. Spencer, Barbara J., 1997. "Quota licenses for imported capital equipment: Could bureaucrats ever do better than the market?," Journal of International Economics, Elsevier, vol. 43(1-2), pages 1-27, August. [Downloadable!] (restricted)
    Other versions:
  10. 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. [Downloadable!] (restricted)
  11. Steven Berry & James Levinsohn & 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. [Downloadable!] (restricted)
  12. Irene Trela & John Whalley, 1991. "Internal Quota Allocation Schemes and the Costs of the MFA," NBER Working Papers 3627, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Feenstra, Robert C, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-78, Summer. [Downloadable!] (restricted)
  14. Krishna, Kala, 1993. "Theoretical Implications of Imperfect Competition on Quota License Prices and Auctions," World Bank Economic Review, Oxford University Press, vol. 7(1), pages 113-36, January.
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