Administrative Delays as Barriers to Trade

One domestic firm and one foreign firm must decide when to introduce their new product to the home market. The home government may apply an import tariff, an administrative delay, or both to the product of the foreign firm. We show that, while both the tariff and administrative delay can ensure the socially optimal timing of entry, the administrative delay is the less efficient instrument for maximising home welfare. If trade liberalization constrains the import tariff to be below its domestically optimal level, we show that the optimal administrative delay leads to lower levels of world welfare than the optimal tariff, so that trade liberalization can be welfare decreasing.