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Sensitivity of Tariffs and Quotas: A Signaling Game

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Author Info
Mohd Amin (Columbia University)

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Abstract

In a model with cost-based informational asymmetry and trade policy determined endogenously, we show that tariffs and import-quotas have different sensitivities to the signal sent by the private agents to the home government. Specifically, the optimal quota is shown to be more sensitive than the optimal tariff as measured in terms of the reduction in equilibrium import-volume caused by the change in the government's perception about the true cost of the domestic firm. Consequently, signaling distortion is larger in the quota regime than in the tariff regime. Non-equivalence between the two policy tools follows from this difference in their sensitivities. The model is benchmarked so that under complete information tariffs and quotas are equivalent.

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File URL: http://129.3.20.41/eps/it/papers/0401/0401003.pdf
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Publisher Info
Paper provided by EconWPA in its series International Trade with number 0401003.

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Length: 30 pages
Date of creation: 22 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0401003

Note: Type of Document - sensitivity-effect.pdf; prepared on Win98; to print on Letter; pages: 30; figures: None. None
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Related research
Keywords: Trade Policy; Singnaling;

Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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.:
  1. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May. [Downloadable!] (restricted)
  2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  3. Bagwell, Kyle & Staiger, Robert W., 2003. "Informational aspects of foreign direct investment and the multinational firm," Japan and the World Economy, Elsevier, vol. 15(1), pages 1-20, January. [Downloadable!] (restricted)
  4. Itoh, Motoshige & Ono, Yoshiyasu, 1984. "Tariffs vs. quotas under duopoly of heterogeneous goods," Journal of International Economics, Elsevier, vol. 17(3-4), pages 359-373, November. [Downloadable!] (restricted)
  5. Herander, Mark G & Kamp, Brad, 1999. "Tariff Policy and Entry with Cost-Based Informational Asymmetries," Economic Inquiry, Oxford University Press, vol. 37(1), pages 60-73, January.
  6. Bagwell, Kyle, 1991. "Optimal Export Policy for a New-Product Monopoly," American Economic Review, American Economic Association, vol. 81(5), pages 1156-69, December. [Downloadable!] (restricted)
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