Supply diversion, ineffective quantitative restrictions, and the nonequivalence of tariffs, quotas, and vers

Abstract

In this paper a voluntary export restraint (VER) is demonstrated to have no effect on equilibrium prices, real incomes, and welfare using a multidimensional general equilibrium model that supports multiple world supply configurations at one equilibrium price vector. This set of configurations is called replicate equilibria. It is shown that a VER that precludes one equilibrium may not preclude a replicate. It is also shown that VERs and quotas may not be equivalent to a tariff even with perfect competition in all markets.