Modelling quantitative trade restrictions: Rationing in the Rotterdam model

Abstract

We develop methods of identifying if, following the imposition of a quantitative import restriction, consumers are rationed, and of allowing for this in the estimation of demand functions. We model demand with the Rotterdam model. The methods are based on Neary and Roberts' model of rationing and rely on identifying differences in the stochastic structure of demand under rationing and market clearing. By way of example we consider the demand-side effects of the voluntary export restraint imposed during the 1970s and 1980s on Comecon exports of women's and children's leather footwear to the UK. The methodology developed is equally applicable to the case where import prices rise to clear excess demand, leaving suppliers facing a quantity ration.