We use a standard general equilibrium trade model to show that export and import policies are not symmetric in the equilibrium of a strategic game with quotas. We assume N (identical) large countries non-cooperatively set their import (or export) quotas to maximize domestic welfare. We show that the equilibrium in which all countries use import quotas differs from, and is superior to, the equilibrium in which countries use export quotas. The difference arises because the elasticity of the residual foreign export supply schedule differs between the two equilibria. We also study the properties of the sequential equilibrium of the game. In a simultaneous move game, each country is indifferent as to whether it uses an import or export quota, given the policy of the other country. However, in a sequential move game, the first mover will prefer to use an import quota rather than an export quota.
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
5251.
Length: Date of creation: 01 Mar 2002 Date of revision: Publication status: Published in Review of International Economics, February 2004, Vol. 12, No. 1, pp. 130-37. Handle: RePEc:isu:genres:5251
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Find related papers by JEL classification: F1 - International Economics - - Trade