This paper investigates the policy active importers’ incentives and welfare implications of using production and trade polices in a dynamic framework where production decisions occur before consumption decisions. We show that the equilibrium for production taxes and quotas are not equivalent, and that each equilibrium depends on whether the trade policy instruments are tariffs or quotas. Under import quotas, the equilibrium policy is to tax domestic production, whereas under a tariff either a production tax or subsidy may be optimal. We also show that a collective agreement to ban production policies is likely to be welfare-improving in many circumstances.
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
5049.
Length: Date of creation: 01 Mar 2002 Date of revision: Publication status: Published in American Journal of Agricultural Economics, November 2001, Vol. 83, No. 4, pp. 921-933. Handle: RePEc:isu:genres:5049
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Find related papers by JEL classification: F1 - International Economics - - Trade Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
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