Endogenous Choice of Trade Instrument Under Uncertainty
This paper endogenizes the choice between import tariffs and quotas of two policy active countries in a duopsonistic world market. Without uncertainty, import quotas are welfare superior to import tariffs in equilibrium. If two importers can precommit to a type of instrument before deciding the level of the instrument to use in a future period, an import quota equilibrium emerges. We introduce asymmetric risk in the import demand schedule of the two importers. There exists a range of parameters in which a mixed equilibrium emerges; i.e. one country uses a tariff while the other restricts trade with an import quota. The likelihood that both importers choose a different trade instrument in equilibrium is increasing with the correlation coefficient of the two random shocks.
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|Date of creation:||01 Jan 2002|
|Date of revision:|
|Publication status:||Published in International Economic Journal 2002, vol. 16 no. 4|
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- Gervais, Jean-Philippe & Lapan, Harvey E., 2001.
"Optimal Production Tax and Quota Under Time Consistent Trade Policies,"
Staff General Research Papers
5049, Iowa State University, Department of Economics.
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- Bergstrom, Theodore C, 1982. "On Capturing Oil Rents with a National Excise Tax," American Economic Review, American Economic Association, vol. 72(1), pages 194-201, March.
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