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Sensitivity of Tariffs and Quotas: A Signaling Game


  • Mohd Amin

    (Columbia University)


In a model with cost-based informational asymmetry and trade policy determined endogenously, we show that tariffs and import-quotas have different sensitivities to the signal sent by the private agents to the home government. Specifically, the optimal quota is shown to be more sensitive than the optimal tariff as measured in terms of the reduction in equilibrium import-volume caused by the change in the government's perception about the true cost of the domestic firm. Consequently, signaling distortion is larger in the quota regime than in the tariff regime. Non-equivalence between the two policy tools follows from this difference in their sensitivities. The model is benchmarked so that under complete information tariffs and quotas are equivalent.

Suggested Citation

  • Mohd Amin, 2004. "Sensitivity of Tariffs and Quotas: A Signaling Game," International Trade 0401003, EconWPA.
  • Handle: RePEc:wpa:wuwpit:0401003
    Note: Type of Document - sensitivity-effect.pdf; prepared on Win98; to print on Letter; pages: 30; figures: None. None

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    References listed on IDEAS

    1. Brainard, S. Lael & Martimort, David, 1997. "Strategic trade policy with incompletely informed policymakers," Journal of International Economics, Elsevier, vol. 42(1-2), pages 33-65, February.
    2. Bagwell, Kyle, 1991. "Optimal Export Policy for a New-Product Monopoly," American Economic Review, American Economic Association, vol. 81(5), pages 1156-1169, December.
    3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    4. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
    5. Bagwell, Kyle & Staiger, Robert W., 2003. "Informational aspects of foreign direct investment and the multinational firm," Japan and the World Economy, Elsevier, vol. 15(1), pages 1-20, January.
    6. Herander, Mark G & Kamp, Brad, 1999. "Tariff Policy and Entry with Cost-Based Informational Asymmetries," Economic Inquiry, Western Economic Association International, vol. 37(1), pages 60-73, January.
    7. Itoh, Motoshige & Ono, Yoshiyasu, 1984. "Tariffs vs. quotas under duopoly of heterogeneous goods," Journal of International Economics, Elsevier, vol. 17(3-4), pages 359-373, November.
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    More about this item


    Trade Policy; Singnaling;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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