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Trade Policy with Heterogeneous Traders: Do Quotas Get a Bum Rap?

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  • Kala Krishna
  • Ling H. Tan

Abstract

This paper considers the effects of trade policy--tariffs and quotas--when importing is done by competitive traders who are identical ex ante but differ ex post. We show that the standard equivalence results no longer hold and the conventional ranking of tariffs and quotas is turned on its head: quotas are not as bad for welfare as previously believed, while tariffs may restrict trade by more than originally intended. Furthermore, the allocation of property rights (quota licenses) has real effects beyond the distribution of rents; this, in turn, has implications for the effects of corruption on welfare.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13040.

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Date of creation: Apr 2007
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Handle: RePEc:nbr:nberwo:13040

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  1. Baldwin, Richard & Forslid, Rikard, 2004. "Trade Liberalization with Heterogenous Firms," CEPR Discussion Papers 4635, C.E.P.R. Discussion Papers.
  2. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  3. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  4. Rachel McCulloch, 1973. "When Are a Tariff and a Quota Equivalent:," Canadian Journal of Economics, Canadian Economics Association, vol. 6(4), pages 503-11, November.
  5. Kala Krishna, 1990. "Export Restraints With Imperfect Competition: A Selective Survey," NBER Working Papers 3244, National Bureau of Economic Research, Inc.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  7. Jan Jørgensen & Philipp Schröder, 2005. "Welfare-ranking ad valorem and specific tariffs under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 228-241, February.
  8. repec:rus:hseeco:122439 is not listed on IDEAS
  9. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
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