Tariffs and quotas in the presence of foreign monopoly

The paper contrasts the effects of tariffs and quantitative restrictions in the presence of a foreign monopolistic exporter. It is shown that a tariff may induce a Lerner-type effect in the tariff-imposing country whereas a quota will necesarily have such an effect. More generally, a quota will worsen the terms of trade more than the equivalent tariff, although the foreign monopolist may not capture the entire scarcity rent produced by the quota. These results have significant implications when the relative costs of various trade barriers are evaluated.