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 by economic agents. The competition for rents/revenues is welfare-reducing and may be economically more significant than the efficiency losses resulting from the quota/tariff-induced resource reallocation. We show that repeated interaction among firms can support a socially desirable form of collusion, i.e. cooperation, that eliminates wasteful rent- and revenue-seeking expenditures. While aggregate outcomes are equivalent under tariffs and quotas if cooperation arises, the conditions under which cooperation arises differ by policy. 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, in this sense, quotas are welfare enhancing relative to tariffs.
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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:
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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)
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