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A Trade Policy Perspective On Import Quotas And The Substitution Effect

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  • Cadogan, Godfrey

Abstract

This paper focuses on the necessary conditions required in order to exploit the substitution effect which arises when there is a shift in demand induced by import quotas under imperfect competition. The protective policy succeeds if the substitution effect shifts in favor of goods produced by the domestic industry and this shift offsets foreign firms quota rents and the decrease in consumer welfare. While extant literature tends to focus on welfare loss associated with import quotas, in this paper social welfare analytics are produced and a trade policy decision rule for net welfare gain is obtained.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25862.

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Date of creation: Sep 2010
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Handle: RePEc:pra:mprapa:25862

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Keywords: Import quota; social welfare; substitution effect; trade policy decision rule.;

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  1. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 400-430, June.
  2. Anderson, John E., 1985. "On testing the convexity of hedonic price functions," Journal of Urban Economics, Elsevier, vol. 18(3), pages 334-337, November.
  3. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(1), pages 59-80, February.
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