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Tariffs And Subsidies Under Asymmetric Oligopoly: Ad Valorem Versus Specific Instruments

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  • DAVID R. COLLIE

Abstract

This paper analyses the welfare effects of ad valorem and specific trade policy instruments (import tariffs and production subsidies) under asymmetric Cournot oligopoly and then compares the efficiency of ad valorem with specific instruments. It is shown that these trade policy instruments have rationalization effects similar to those in Collie (European Journal of Political Economy, Vol. 9 (1993), pp. 275-280), and that an ad valorem production subsidy will have an additional negative rationalization effect. Also, it is shown that an ad valorem production subsidy yields lower welfare than a specific production subsidy due to this additional negative rationalization effect, and that combining ad valorem and specific instruments yields welfare gains. Copyright © 2006 The Author; Journal compilation © Blackwell Publishing Ltd and The University of Manchester 2006.

Suggested Citation

  • David R. Collie, 2006. "Tariffs And Subsidies Under Asymmetric Oligopoly: Ad Valorem Versus Specific Instruments," Manchester School, University of Manchester, vol. 74(3), pages 314-333, June.
  • Handle: RePEc:bla:manchs:v:74:y:2006:i:3:p:314-333
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    Cited by:

    1. Wang, Leonard F.S., 2016. "Do industrial and trade policy lead to excess entry and social inefficiency?," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 354-362.
    2. repec:kap:jeczfn:v:123:y:2018:i:1:d:10.1007_s00712-017-0542-8 is not listed on IDEAS
    3. Valido, Jorge & Pilar Socorro, M. & Hernández, Aday & Betancor, Ofelia, 2014. "Air transport subsidies for resident passengers when carriers have market power," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 388-399.
    4. repec:kap:jincot:v:17:y:2017:i:4:d:10.1007_s10842-017-0244-5 is not listed on IDEAS
    5. Jinji, Naoto, 2014. "Comparative statics for oligopoly: A generalized result," Economics Letters, Elsevier, vol. 124(1), pages 79-82.
    6. Tomomichi Mizuno & Kazuhiro Takauchi & Takeshi Iida, 2011. "Better technology may be sold for a lower fee: The ad valorem tariff and licensing contract," Discussion Papers 1109, Graduate School of Economics, Kobe University.
    7. J¿rgen Drud Hansen & J¿rgen Ulff-M¿ller Nielsen, 2007. "Market Integration, Choice of Technology and Welfare," Working Papers 0711, University of Otago, Department of Economics, revised Apr 2007.
    8. Laszlo Goerke, 2011. "Commodity tax structure under uncertainty in a perfectly competitive market," Journal of Economics, Springer, vol. 103(3), pages 203-219, July.
    9. Ngo Van Long & Antoine Soubeyran, 2003. "A Theory of Favoritism under International Oligopoly," CIRANO Working Papers 2003s-15, CIRANO.
    10. Hong Hwang & Chao-Cheng Mai & Ya-Po Yang, 2015. "Specific vs Ad Valorem Strategic Export Subsidies with Taxation Distortion," Review of Development Economics, Wiley Blackwell, vol. 19(4), pages 820-828, November.
    11. Jørgen Drud Hansen & Jørgen Ulff-Møller Nielsen, 2010. "Market Integration, Choice of Technology, and Welfare," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 229-242, May.
    12. repec:eee:quaeco:v:67:y:2018:i:c:p:1-7 is not listed on IDEAS
    13. Jinji, Naoto & Toshimitsu, Tsuyoshi, 2013. "Strategic R&D policy in a quality-differentiated industry with three exporting countries," Japan and the World Economy, Elsevier, vol. 28(C), pages 132-142.
    14. Dermot Leahy & Catia Montagna, 1998. "Targeted Strategic Trade Policy with Domestic Cost Heterogeneity," Dundee Discussion Papers in Economics 100, Economic Studies, University of Dundee.

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