On the Equivalence of Tariffs and Quotas under a Revenue Constraint

This paper sets out a duopolistic model to examine the price and welfare equivalence of tariffs and quotas, given the quota rent is equal to the tariff revenue. It shows that the domestic welfare ranking of the two trade policies crucially depends on the relative costs of the domestic and foreign firms; when the domestic firm's relative costs are lower than those of the foreign firm, a quota regime generally leads to a higher welfare level than that of an equivalent tariff regime. This finding contrasts sharply with the conclusions of Dasgupta and Stiglitz (1977 ), where it was found that a tariff regime always generates higher domestic welfare.     

Tariff and Quota Equivalence in Vertically Related Markets

This paper re‐examines the issue of tariff and quota equivalence by introducing an upstream market into the Hwang and Mai (1988 ) model, and then allowing the two downstream firms to cross‐haul within each other's market. We assume the upstream monopolist can select either a two‐part or a one‐part tariff pricing strategy. It is found that if the upstream firm adopts a two‐part (one‐part) tariff pricing strategy, then the market price of the final good under a tariff will be higher (lower) than that under an equivalent quota; that is, the quota is set at the import level under the tariff regime. This result stands in stark contrast to the prior findings of both Hwang and Mai (1988 ) and Fung (1989 ). Moreover, if the quota rent is set as being equal to the tariff revenue, the social welfare under a tariff will necessarily be lower than that under an equivalent quota.     

Tariffs Versus Quotas in a Differentiated Products Market: A Conjectural Variations in Prices Approach

This paper examines the (non)equivalence of a tariff and a quota set at the level of imports generated by the tariff using a conjectural variations in prices model. It extends previous studies by considering a variety of firm behavior patterns in the tariff equilibrium and when the imports and the domestic products are complements. The results obtained encompass most of the previous results. In addition, for complements, replacing a tariff with a quota has opposite effects on the prices of two products. Also, the prices under tariffs and quotas are not necessarily equivalent for complements. [F13]     

OPTIMUM-WELFARE AND MAXIMUM-REVENUE TARIFFS IN MIXED OLIGOPOLY WITH FOREIGN COMPETITORS

This paper re-examines the important tariff ranking issue under a linear mixed oligopoly model with foreign competitors and asymmetric costs. We demonstrate that under Cournot competition, when the size of domestic private and foreign private firms become more unequally distributed, optimum-welfare tariff will exceed maximum-revenue tariff. We also show that under Stackelberg competition, when the domestic government protects its domestic sector, it will levy higher optimum-welfare tariffs versus maximum-revenue tariffs; however, when it decides to open its doors more for foreign competitors, it will need to levy higher maximum-revenue tariffs versus optimum-welfare tariffs. The above results remain valid whether the domestic public firm acts as a leader or a follower.     

Strategic trade policy under asymmetric information with screening

The design of strategic rent-extracting trade policies requires information that may be private, such as the cost structure of an industry or parameters of the demand function. As a consequence, under asymmetric information, the design of these policies is problematic. We propose screening menus consisting of different instruments (tariff vs. quota) designed to solve this informational issue. We first use a simple model that examines a Cournot duopoly between a domestic firm and a foreign firm with linear demand and cost functions, with both firms supplying a homogeneous good on the domestic market. In this scenario, if the government does not have information regarding the demand parameter, which is known by both firms, a menu consisting of a rent-extracting tariff for a low demand parameter and a rent-extracting quota for a high demand parameter maximizes the government's objective function. This menu leads the domestic firm to reveal private information. We then generalize this framework to a scenario with imperfect information regarding the firms' marginal cost. Finally, we discuss the issue of quotas generating public revenues and study the case of a menu consisting of a tariff and a free quota.     

Quota-Induced Cycles

We present a new framework to compare the dynamic effect of tariffs and quotas in the presence of oligopoly. Suppose that the domestic and the foreign firm play a quantity-setting game over time in a perfectly stationary economy. A Markov-perfect equilibrium has the foreign firm exporting at the constant rate under a tariff. In contrast, under the quota the rate of exports changes monotonically over the course of each year, causing seasonal fluctuations in domestic production. Quota-induced cycles can make dynamic market segmentation possible and raise profits for both the firms above what they earn under the equal-import tariff.     

Tariffs, licensing and market structure

This paper challenges the conventional wisdom that exclusive owners of an advanced technology are always better off when producing as a monopolist than when competing against another firm. Competition against a less-efficient firm weakens the power that a host country can exert on the incumbent in the form of its tariff policy. We show that this gives a motive for a monopolist to license its technology to another foreign firm. A host country gains more from increased competition if it can induce the foreign incumbent to transfer technology to the host country firm. We show that the host country can do so by tariff commitment. We also discuss the implications of bargaining under licensing and Bertrand competition in the product market. Hence, this paper qualifies and extends the recent work of Kabiraj and Marjit [Protecting consumers through protection: The role of tariff-induced technology transfer. European Economic Review 47, 113-124].     

Smuggling and Bhagwati's Nonequivalence Between Tariffs and Quotas

The authors extend Professor Bhagwati's analysis about the nonequivalence between trade policy instruments when domestic production is monopolized and the terms of trade are endogenous, by allowing for smuggling. They show that the dominance of the ad valorem tariff over the quota is not robust. Tariffication can lower welfare even when the level of illegal imports is quite small. However, tariffication with a specific tariff is always beneficial because the specific tariff dominates the ad valorem tariff and the quota with or without smuggling. Smuggling (or the threat) also tends to lower the second–best tariff/quota, and increases welfare when imports are restricted by a quota, but lowers it under a tariff.     

PERFORMANCE CONTINGENT PROTECTION*

In this paper we ask how to construct a tariff or quota schedule which depends on the behavior of a domestic monopsonistic monopolist in order to achieve the best tradeoff between two objectives of a government. We consider various political and economic tradeoffs which could face the policy maker: aggregate welfare versus industry profits, output and imports; and trade barrier revenue versus industry profits and domestic price. In all cases considered, performance contingent protection which takes the form either of a tariff which depends on domestic output or a quota which depends on the price charged is generally superior to a fixed tariff or quota and is sufficient to achieve optimality.     

On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly

This paper deals with the issue of the Cournot–Bertrand profit differential by bringing together two different strands of the industrial organisation literature: managerial delegation and unionised oligopolies. Relative to unionisation, two alternative regimes are analysed and compared: ‘decentralised unionisation’, involving firm‐specific unions, and ‘centralised unionisation’, in which an industry‐wide union sets a uniform wage for the entire industry. The ‘reversal result’ – that is, profits are higher under Bertrand than under Cournot – applies irrespective of the unionisation regime and for a very wide range of product differentiation. Moreover, it is more likely to occur when unionisation is decentralised than centralised and, especially when products are not too much differentiated, the profit differential in favour of price competition is also larger in the presence of firm‐specific unions. However, if firm owners not only delegate the choice of the strategic variable but also that of the competition regime, managers always opt to compete in quantities, thus generating an inefficient choice for owners.     

State Trading and Tariff Rate Quotas: The Case of Korea's Rice Imports

This paper analyzes the effects of trade liberalization of tariff‐rate quotas under import “state trading enterprises” (STEs) in agriculture. An analytical framework is provided to determine the importance of which instrument is binding under competition (the in‐quota or out‐of‐quota tariff or the quota) and under the initial STE equilibrium. It also depends on whether or not the STE controls both the domestic market prices and owns/controls the import quota (and whether it is obligated to fill the quota or not). An empirical example of the rice STE in South Korea has simulations showing that an increase in imports can be achieved through a moderate expansion of the quota or a decrease in the out‐of‐quota tariff to the level where it becomes binding. However, a significant level of quota expansion induces the STE to switch to the autarky solution and social welfare declines.     

Welfare‐reducing Domestic Cost Reduction*

We show that cost reduction by a domestic firm may reduce domestic welfare if it changes a foreign firm’s production strategy from foreign direct investment to export. Domestic cost reduction can be welfare reducing when the domestic market is sufficiently small and domestic firm’s marginal cost of production is higher than the foreign firm’s marginal cost of production under foreign direct investment, which is a usual feature of trade between developed and developing countries. So, developing countries with small domestic markets need competent competition policies when encouraging domestic innovation and also trying to attract foreign direct investment.     

Labor standards, labor-management bargaining and international rivalry

Using the labor union's bargaining power as an indication of government policy on labor standards issues, we analyze the competition between a domestic (North) firm and a foreign (South) firm, and their relationship with optimal labor standards (LS). First, we show that the optimal level of LS is higher when labor unions are employment-oriented than when they are not. Second, it is higher under free trade than under the optimal tariff system if labor unions are employment-oriented. Third, ‘a race to the bottom’ of LS occurs in the case of wage-oriented unions. Fourth, the North's imposing a tariff to force the Southern government to raise its LS is effective only if the Southern union is wage-oriented. In order to raise Southern LS, both countries may need some deeper form of economic integration, if the North does not want to abandon its free trade system.     

不完全竞争、非对称信息下的最优进口贸易政策和产业政策

本文讨论了不完全竞争和非对称信息情况下 ,如何运用进口贸易政策和产业政策增进本国福利的问题。本文发现 ,(1 )在Cournot同质产品竞争的情况下 ,制定可以诱使本国企业显示真实成本的政策规则可以实现与完全信息情况相同的配置结果 ;并且 ,本国企业的生产成本越低 ,政策规则规定的最优关税越低 ;在某些成本结构下 ,甚至应该执行零关税政策。 (2 )在圆形城市空间竞争 (SpatialCompetitioninCircularCity)的情况下 ,生产补贴和关税的作用完全等价 ;不存在可以实现事后效率的政策规则 ,并且 ,约束最优结果不是一个PBE均衡结果 ,本国政府的最优政策是制定等于单位运输成本的关税。上述结论蕴含 ,最优政策干预以及它能否消除非对称信息可能带来的效率损失依赖于竞争类型 ,而不依赖于信息结构 ,因此 ,它不会发生扭曲     

On the Equivalence of Ad Valorem Tariffs and Specific Tariffs under Duopoly*

Using a quantity conjectural variation model, this paper examines whether an ad valorem tariff and a specific tariff are equivalent under duopoly. We show that if the average per‐unit import tax is the same for the two tariffs, domestic output will be smaller while foreign output will be larger under an ad valorem tariff. We further show that for any value of a specific tariff, there is a Pareto‐superior ad valorem tariff for all values of conjectural variation except in the case of perfect competition where the two tariffs are equivalent.     

Stackelberg竞争条件下的最佳福利关税与最大收入关税

文章考察Stackelberg竞争条件下的最佳福利关税与最大收入关税。分析表明,最佳福利关税与最大收入关税的相对大小主要取决于产品之间的相互关系和国内外企业的成本差异。当产品是互补品时,最佳福利关税总是小于最大收入关税;当产品是替代品时,最佳福利关税与最大收入关税的关系,既取决于产品间的替代程度又取决于国内外企业间的成本差异。产品的替代程度较弱时,最大收入关税总是大于最佳福利关税;产品的替代程度较强时,若国内外厂商间的成本差异越小,则最佳福利关税越有可能超过最大收入关税。     

Strategic tariffs, tariff jumping, and heterogeneous firms

The majority of research to date investigating strategic tariffs in the presence of multinationals finds a knife-edge result where, in equilibrium, all foreign firms are either multinationals or exporters. Utilizing a model of heterogeneous firms, we find equilibria in which both pure exporters and multinationals coexist. We utilize this model to study the case of endogenously chosen tariffs. As is standard, Nash equilibrium tariffs are higher than the socially optimal tariffs. Unlike existing models with homogeneous firms, we find that non-cooperative tariffs promote the existence of low-productivity firms relative to the socially optimal tariffs. This highlights a new source of inefficiency from tariff competition not found in models of homogeneous firms. In addition, we find that in many cases the Nash equilibrium tariff when FDI is a potential firm structure is lower than when it is not. As a result, FDI improves welfare by mitigating tariff competition.     

A welfare analysis of tariffs and equivalent quotas under demand uncertainty: Implications for tariffication

Under market demand uncertainty, we show that quotas can result in a welfare advantage over tariffs for an importing country despite that its government does not capture any quota rents. Specifically, the conditions under which an equivalent quota yields higher expected welfare than a tariff are shown to depend on a set of economic variables. These variables include the initial tariff rate, the relative efficiency in production between home and foreign firms, the probability distribution of random demand shocks that make the quota binding or non-binding under uncertainty, as well as the variance of the stochastic market demand. The analysis of this paper has welfare implications for tariffication.     

On tariff and quality innovation in a market with discrete preferences

In a market for a quality-differentiated good with heterogeneous set of consumers and a local firm facing competitive imports from abroad, we examine private and social incentives for quality innovation. For differential tariff regime, we show that both the private and social gains increase with the tariff protection for the low-quality segment of the domestic market for any given tariff on high-quality imports. But for some very high costs of innovation, the local firm may not undertake a socially desirable innovation. The pro-competitive effect, on the other hand, ensures that quality-distortion-at-the-bottom occurs only for very high levels of tariffs.     

Optimal policy for environmental goods trade in asymmetric oligopolistic eco-industries

In this paper, we examine the optimal structure of an environmental tax to pollution, a production subsidy to a domestic eco-industry, and an import tariff on environmental goods (EGs) in a two-country model where the home country imports EGs from the foreign country. Home and foreign firms that produce EGs engage in Cournot competition. We then assume that the number of the home local firms which produce EGs is constant, but that of the foreign firms is variable. Our main findings are as follows: (I) The optimal environmental tax level may be lower than the Pigouvian level even if the tax has a positive impact on the output of EGs produced by a domestic firm. (II) The optimal tariff level may be positive when the country implements the first best policy combination in a closed economy regarding the environmental tax and the subsidy. (III) The optimal subsidy level may be positive, and then the subsidy may be substitutive for the import tariff on EGs.