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Tariffs vs. Quotas with Endogenous Quality


  • Kala Krishna


This paper analyzes some aspects of the effects of trade restrictions (such as tariffs, quotas and quality controls) and their desirability when the quantity of the imported good is endogenous, and the foreign producer is a monopolist. It uses a fairly general model based on the work of Spence and Sheshinski. A crucial determinant of the direction of these effects is shown to be the valuation of increments in quality by marginal consumers,relative to that of all consumers on average. A way of comparing infinitesimal equivalent policies is developed and used to compare import equivalent policies. For reasonable characterizations of demand - tariffs are shown to dominate quotas on the basis of their revenue effects alone, while quotas are shown to dominate tariffs on the basis of their quality effects alone. Also, quality controls are shown to dominate both tariffs and quotas on the basis of revenue effects alone for reasonable characterizations of demand. Some special cases are also analyzed, including the case where demand is modelled along the lines of Swan - and only services of the good produced matter to consumers.

Suggested Citation

  • Kala Krishna, 1985. "Tariffs vs. Quotas with Endogenous Quality," NBER Working Papers 1535, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1535
    Note: ITI IFM

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    References listed on IDEAS

    1. Swan, Peter L, 1970. "Durability of Consumption Goods," American Economic Review, American Economic Association, vol. 60(5), pages 884-894, December.
    2. Krishna, Kala, 1990. "Protection and the Product Line: Monopoly and Product Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 87-102, February.
    3. Sheshinski, Eytan, 1976. "Price, Quality and Quantity Regulation in Monopoly Situations," Economica, London School of Economics and Political Science, vol. 43(17), pages 127-137, May.
    4. Carlos Alfredo Rodriguez, 1979. "The Quality of Imports and the Differential Welfare Effects of Tariffs, Quotas, and Quality Controls as Protective Devices," Canadian Journal of Economics, Canadian Economics Association, vol. 12(3), pages 439-449, August.
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    Cited by:

    1. Randi Boorstein & Robert C. Feenstra, 1987. "Quality Upgrading and its Welfare Cost in U.S. Steel Imports, 1969-74," NBER Working Papers 2452, National Bureau of Economic Research, Inc.
    2. L. Lambertini, 1995. "Intraindustry Trade Under Vertical Product Differentiation," Working Papers 233, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Kala Krishna, 1990. "Export Restraints With Imperfect Competition: A Selective Survey," NBER Working Papers 3244, National Bureau of Economic Research, Inc.
    4. Zhou, Dongsheng & Spencer, Barbara J. & Vertinsky, Ilan, 2002. "Strategic trade policy with endogenous choice of quality and asymmetric costs," Journal of International Economics, Elsevier, vol. 56(1), pages 205-232, January.
    5. Krishna, Kala & Erzan, Refik & Tan, Ling Hui, 1994. "Rent Sharing in the Multi-fibre Arrangement: Theory and Evidence from U.S. Apparel Imports from Hong Kong," Review of International Economics, Wiley Blackwell, vol. 2(1), pages 62-73, February.
    6. Larue, Bruno & Gervais, Jean-Philippe, 1996. "The Impact of the Canada-U.S. Hog/Pork Trade Dispute on the Composition of U.S. Pork Imports," Agricultural and Resource Economics Review, Cambridge University Press, vol. 25(02), pages 187-199, October.
    7. Werner Smolny, 2003. "Determinants of innovation behaviour and investment estimates for west-german manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(5), pages 449-463.
    8. Lutz, Stefan H., 2002. "The Effects of Quotas on Vertical Intra-Industry Trade," ZEW Discussion Papers 02-61, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. repec:kap:iaecre:v:11:y:2005:i:2:p:163-173 is not listed on IDEAS
    10. Robert C. Feenstra, 1993. "Measuring the Welfare Effect of Quality Change: Theory and Application of Japanese Autos," NBER Working Papers 4401, National Bureau of Economic Research, Inc.
    11. Kala Krishna, 1988. "What Do Voluntary Export Restraints Do?," NBER Working Papers 2612, National Bureau of Economic Research, Inc.
    12. Rajat Acharyya & Swapnendu Banerjee, 2005. "On Tariff, Quality Choice and Innovation in a Vertically Differentiated Monopoly with Discrete Preferences," Departmental Working Papers wp0504, National University of Singapore, Department of Economics.

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