A welfare analysis of tariffs and equivalent quotas under demand uncertainty: Implications for tariffication |
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| Authors: | Hung-Yi Chen Yang-Ming Chang Jiunn-Rong Chiou |
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| Institution: | 1. Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy;2. CREA, University of Luxembourg, Avenue de la Faencerie 162a, L-1511, Luxembourg;1. Faculty of Economics and Management of Nabeul, ENVIE, University of Carthage, Tunisia and Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE), Canada;2. Laval University, Department of Agricultural Economics and Consumer Science, CREATE and Egg Industry Economic Research Chair, Canada;3. University of Carthage, Department of Industrial Economics, Polytechnic School of Tunisia, LEGI and Faculty of Economics and Management of Nabeul, Tunisia |
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| Abstract: | 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. |
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