Technological Upgrading under Tariffs and Equivalent Quotas*

This paper compares the effect of tariffs and that of equivalent quotas on the domestic firm’s production technology choice when it competes with a foreign firm in the domestic market. It is shown that under Bertrand price competition, the ranking of technology under tariff protection and quota protection is ambiguous, as it depends on the relative strength of the strategic vs output effects. The equivalent quota regime can generate a higher‐technology (implying a lower production cost) choice than the tariff regime if the strategic effect dominates the output effect. In contrast, the technology level is necessarily higher under the tariff regime than under the equivalent quota regime when the firms engage in Cournot quantity competition.     

Simultaneous Reform of Tariffs and Quotas

This paper presents a general result for simultaneous reform of tariffs and quotas in a small open economy, where some of the quota rents do not accrue to domestic residents. Absent highly perverse income effects, welfare must rise following a uniform proportionate reduction in tariffs and a uniform proportionate relaxation of quotas, weighted by their rent‐retention parameters. Previous results are shown to be special cases of this one, and its implications for practical policy advice and its relationship with the policy of “tariffication” of quotas are discussed.     

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.     

Tariffs vs Quotas in a Model of Trade with Capital Accumulation*

This paper examines the equivalence among price‐modifying and quantity‐fixing international trade policies in a differential game. We employ two well‐known capital accumulation dynamics for firms, due to Nerlove and Arrow and to Ramsey, respectively. We show that, in both cases, open‐loop and closed‐loop Nash equilibria coincide. Under the former accumulation the tariff‐quota equivalence holds, while, in general, it does not under the latter. Moreover, in the Ramsey model, the country setting the trade policy (weakly) prefers a quantity‐equivalent import quota to the adoption of the tariff. These results are not a consequence of the equilibrium concept we adopt (with and without market power), but directly follow from the interplay between market power and the properties of accumulation dynamics.     

Trade Reform Diagnostics with Many Households, Quotas, and Tariffs

Revenue-neutral trade reform is desirable if revenues are made up from less costly distortions. With a particular computable general-equilibrium model, reforms can be evaluated, but the robustness of conclusions is suspect; they depend on a particular specification and parameterization of the model economy. This paper provides a diagnostic toolkit which permits sensitivity analysis across model specifications and parameterizations, notably allowing for heterogeneous households. Novel elements include emphasis on the concept of compensated marginal cost of funds (MCF) necessary to sensitivity analysis, development of the MCF of quotas, and analysis of the relationship between aggregate MCF and social welfare.     

International Trade,Hedging, and the Demand for Forward Contracts*

One of the main results of the literature on the effects of uncertainty on trade states that uncertainty should not matter in the presence of well‐developed forward markets. Empirical studies, however, do not support this result. We derive the demand for forward cover in a small open economy with terms‐of‐trade uncertainty. Adopting a standard and more realistic decision structure than the one usually used in this literature, we find that risk‐averse agents will not buy forwards at an unbiased price. Agents treat forward contracts as an asset rather than as an insurance. This is the reason why, when calibrating the model, only 17% of imports are covered by forwards.     

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.     

Foreign Market Entry Strategies under Asymmetric Information*

A home firm signals her private cost information by expanding in a foreign firm’s country. Credible signaling to deter counter‐entry may occur through a direct investment (but not through exports), and may even entail entering an unprofitable market. While this produces social benefits, uninformative signaling may be welfare‐reducing. Hence, we argue that moderate to high location costs may be socially desirable. We also show that there are not simple monotonic relationships between technology/demand conditions and firms’ entry modes. Thus, the signaling interpretation of international expansion makes it possible to explain some controversial empirical findings on a theoretical ground.     

Optimal Tariffs under a Revenue Constraint*

This paper examines the optimal tariff structure under a revenue constraint. When a fixed level of tax revenue has to be collected from the tariff alone, no adjustment in tariff rates can achieve an efficient resource allocation, even in a small open economy. Hence, the optimal tariff problem arises under a revenue constraint. We show that the revenue‐constrained optimal tariff structure is characterized by the following two rules: (i) the optimal tariff rate is lower for the import good that is a closer substitute for the export good, and (ii) the stronger the cross‐substitutability between imports, the closer the optimal tariff is to uniformity. This provides a theoretical explanation for the finding in empirical studies that the efficiency loss from a uniform tariff structure is negligible.     

A General Equilibrium Approach to the Nonequivalence of Tariffs and Quotas under International Duopoly

We examine the nonequivalence of tariffs and quotas under international duopoly in a simple general equilibrium trading model; in particular, we study the welfare effects of a change in regime from a tariff to a quota. We first show that the results established by our predecessors in a partial-equilibrium segmented domestic market model do not straightforwardly carry over to a general equilibrium context. We next extend the segmented domestic market model to an integrated world market model and re-examine the equivalence of tariffs and quotas as well as the welfare aspects of the change in the regime.     

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.     

The Nonequivalence of Tariffs and Quotas in a Dynamic Trade Model

The paper provides a novel (and old) argument for the nonequivalence of tariffs and quotas, based on the famous paper by Hotelling published in 1931. Unlike tariffs, quantitative restrictions are inherently dynamic. As long as the foreign exporter earns positive marginal profits, he raises their present value by frontloading sales. As a result, unlike a tariff, equilibrium with a quota exhibits quantity and price dispersion over time. The dispersion may be significant even with small discount rates.     

Stable Tariffs and Retaliations*

A two‐country, two‐commodity model of trade is considered to reformulate the tariff retaliations. It is known that tariff retaliations lead to a Nash‐equilibrium, a non‐free‐trade outcome. However, the negotiation process underlying the Nash equilibrium does not capture the notion of retaliation properly. We use the “contingent threat situation” to reformulate tariff retaliations. In this context, we show that the free trade is a stable outcome. More surprisingly, this interesting result is also valid for the “Johnson case,” where one country is better off under the tariff‐ridden Nash equilibrium compared to free trade.     

Asymmetric Demand Information and Foreign Direct Investment*

We examine the FDI versus exports decision of firms competing in an oligopolistic (quantity‐setting) market under demand uncertainty and asymmetric information. Compared to a firm that chooses to export, a firm that chooses to set up a plant in the host market has superior information about local market demand. In addition to the well‐known tension between the fixed set‐up costs of investment, the additional variable costs of exports and oligopoly sizes, the incentive to invest abroad is explained by the strategic learning effect. FDI may be observed even if trade costs are zero. The analysis is robust to price competition and to the possibility that a foreign firm can engage in both FDI and exports.     

Optimal Forestry Contracts under Asymmetry of Information

In this paper, I analyze optimal royalty contracts in forestry when the harvesting firm has private information on the cost of harvesting. This infinite horizon forest rotation model with asymmetry of information on the cost parameter results in a dynamic incentive problem. Depending on whether the costs are correlated over time or not, the firm either receives rent or receives no rent, associated with the continuation part of the rotation choice. I characterize the optimal contract explicitly in both cases. I also examine the loss in expected welfare surplus resulting from the use of a linear contract instead of the more general non‐linear contract.     

信息不对称下的几个经济学实验

实验方法受到经济学界的重视,不对称信息条件下的实验方法研究具有重要现实意义。笔者探讨了若干在不对称信息条件下的经济学实验,包括名誉的作用、信号传递等重要实验,认为不对称信息下的实验的方法及其研究思路值得我国经济学者借鉴和深入研究。     

专用性人力资本投资与工资合约——引入不对称信息的敲竹杠模型

经典的不完全合约理论认为,当事人的专用性投资会引发敲竹杠行为从而导致专用性投资的无效率。本文通过在经典的敲竹杠模型中引入关于雇员能力的不对称信息,构建一个新的模型来分析企业工资合约的刚性与灵活性,以解决敲竹杠所导致的专用性人力资本投资不足。分析表明:从保护雇佣双方专用性人力资本投资方面看,固定工资合约优于灵活工资合约;且在固定工资合约下,雇员虽然仍可能面临敲竹杠风险,但敲竹杠未必妨碍专用性人力资本投资效率。     

Migration under Asymmetric Information and Human Capital Formation

We study the migration of skilled workers, along with the skill acquisition incentives created by the prospect of migration. We trace out the dynamics of migration as foreign employers accumulate experience in deciphering the skill levels of individual migrants. It is found that migration by the relatively highly skilled is followed by return-migration from both tails of the migrant skill distribution; that the possibility of migration induces skill acquisition at home; that until the probability of discovery reaches its steady state equilibrium, migration consists of a sequence of moves characterized by a rising average skill level; and that migration of skilled workers can entail a home-country welfare gain.