The near-equivalence of tariffs and quotas
AbstractWhen governments impose a quota or tariff on imports, it is well known that the resulting rents and revenues trigger costly rent-seeking and revenue-seeking activities, which are welfare reducing and may be economically more significant than the efficiency losses resulting from the quota/tariff-induced resource reallocation. Repeated interaction among firms can eliminate wasteful rent- and revenue-seeking expenditures through cooperation. We show that while aggregate outcomes are equivalent under tariffs and quotas if cooperation arises, the conditions under which cooperation arises differ by policy. This difference arises because a firm must incur additional cost to physically distribute the imports associated with additional quota licenses, whereas there is no such cost when it comes to consuming additional tariff revenue. Thus, quotas and tariffs are only near-equivalent. We provide a simple sufficient condition under which cooperative elimination of rent-seeking under quotas is easier than cooperative elimination of revenue-seeking under tariffs and therefore a quota is the optimal policy whenever the optimal policy admits cooperation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 1305.
Date of creation: Jun 2013
Date of revision:
Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Web page: http://www.smu.edu/economics
Rent-seeking; revenue-seeking; equivalence; near-equivalence; quotas;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-05 (All new papers)
- NEP-CDM-2013-07-05 (Collective Decision-Making)
- NEP-POL-2013-07-05 (Positive Political Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chen, Hung-Yi & Chang, Yang-Ming & Chiou, Jiunn-Rong, 2011. "A welfare analysis of tariffs and equivalent quotas under demand uncertainty: Implications for tariffication," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 549-561, October.
- Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
- Pecorino, Paul, 1998. "Is There a Free-Rider Problem in Lobbying? Endogenous Tariffs, Trigger Strategies, and the Number of Firms," American Economic Review, American Economic Association, vol. 88(3), pages 652-60, June.
- Cheikbossian, Guillaume, 2012.
"The collective action problem: Within-group cooperation and between-group competition in a repeated rent-seeking game,"
Games and Economic Behavior,
Elsevier, vol. 74(1), pages 68-82.
- Cheikbossian, Guillaume, 2009. "The Collective Action Problem: Within-Group Cooperation and Between-Group Competition in a Repeated Rent-Seeking Game," TSE Working Papers 09-085, Toulouse School of Economics (TSE).
- Svensson, Jakob, 2000.
"Foreign aid and rent-seeking,"
Journal of International Economics,
Elsevier, vol. 51(2), pages 437-461, August.
- S. Lael Brainard & Thierry Verdier, 1993.
"The Political Economy of Declining Industries: Senescent Industry Collapse Revisited,"
NBER Working Papers
4606, National Bureau of Economic Research, Inc.
- Brainard, S. Lael & Verdier, Thierry, 1997. "The political economy of declining industries: Senescent industry collapse revisited," Journal of International Economics, Elsevier, vol. 42(1-2), pages 221-237, February.
- Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
- Bhagwati, Jagdish N., 1980. "Lobbying and welfare," Journal of Public Economics, Elsevier, vol. 14(3), pages 355-363, December.
- Shaffer, Sherrill & Shogren, Jason F., 2009.
"Repeated contests: A general parameterization,"
Elsevier, vol. 105(2), pages 159-161, November.
- Grossman, G.M. & Helpman, E., 1992.
"Protection for Sale,"
Papers, Tel Aviv
21-92, Tel Aviv.
- Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 162, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
- Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
- Hong Hwang & Kuoâ€Feng Kao & Chengâ€Hau Peng, 2011. "Tariff and Quota Equivalence in Vertically Related Markets," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 19-32, 02.
- Arye L. Hillman & John G. Riley, 1989.
"Politically Contestable Rents And Transfers,"
Economics and Politics, Wiley Blackwell,
Wiley Blackwell, vol. 1(1), pages 17-39, 03.
- Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2012.
"A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments,"
12-22, Chapman University, Economic Science Institute.
- Dechenaux, Emmanuel & Kovenock, Dan & Sheremeta, Roman M., 2012. "A survey of experimental research on contests, all-pay auctions and tournaments," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-109, Social Science Research Center Berlin (WZB).
- Cairns, Robert D., 1989. "Dynamic rent seeking," Journal of Public Economics, Elsevier, vol. 39(3), pages 315-334, August.
- William Corcoran, 1984. "Long-run equilibrium and total expenditures in rent-seeking," Public Choice, Springer, vol. 43(1), pages 89-94, January.
- 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.
- Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
- Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
- Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(4), pages 807-27, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bo Chen).
If references are entirely missing, you can add them using this form.