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Trade-Inducing Quality Standards for Used Durables

  • Sofronis Clerides
  • Costas Hadjiyiannis

We construct a theoretical framework to study the impact of asymmetric quality standards on used durable goods on trade flows, profits and consumer welfare. We show that asymmetry in quality standards generates trade in used goods from high to low standard countries while at the same time reducing trade in new goods. The industry in the exporting country benefits from this change while consumers lose out. Consumers in the importing country are the biggest beneficiaries, but domestic industry is hurt. These results suggest that quality standards on used goods are a powerful policy tool whose use should be monitored by the WTO.

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Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 5-2004.

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Length: 27 pages
Date of creation: Dec 2004
Date of revision:
Handle: RePEc:ucy:cypeua:5-2004
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  1. Danilo Pelletiere & Kenneth A. Reinart, 2002. "The Political Economy of Used Automobile Protection in Latin America," The World Economy, Wiley Blackwell, vol. 25(7), pages 1019-1037, 07.
  2. Grubel, Herbert G., 1980. "International trade in used cars and problems of economic development," World Development, Elsevier, vol. 8(10), pages 781-788, October.
  3. Smith, M A M, 1976. "International Trade Theory in Vintage Models," Review of Economic Studies, Wiley Blackwell, vol. 43(1), pages 99-113, February.
  4. Clerides, Sofronis, 2008. "Gains from trade in used goods: Evidence from automobiles," Journal of International Economics, Elsevier, vol. 76(2), pages 322-336, December.
  5. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  6. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
  7. Copeland,B.R. & Scott Taylor,M., 2003. "Trade, growth and the environment," Working papers 10, Wisconsin Madison - Social Systems.
  8. Goering, Gregory E & Pippenger, Michael K, 2000. "International Trade and Commercial Policy for Durable Goods," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 275-94, May.
  9. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
  10. Bond, Eric W, 1983. "Trade in Used Equipment with Heterogeneous Firms," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 688-705, August.
  11. Driskill, Robert A. & Horowitz, Andrew W., 1996. "Durability and strategic trade Are there rents to be captured?," Journal of International Economics, Elsevier, vol. 41(1-2), pages 179-194, August.
  12. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
  13. Garth Frazer, 2008. "Used-Clothing Donations and Apparel Production in Africa," Economic Journal, Royal Economic Society, vol. 118(532), pages 1764-1784, October.
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