When Are a Tariff and a Quota Equivalent?

Abstract

When Are A Tariff and A Quota Equivalent? This paper extends the work of Bhagwati and others on the nonequivalence of tariffs and quotas by taking the motive for protection into account. Specifically, the welfare cost associated with tariff or quota protection of a monopolized domestic industry is shown to depend on the objective underlying protection. Where the objective of protection is to raise domestic price, an import quota results in a lower welfare cost than a tariff which achieves the same objective. A quota may also! provide a less costly means of fixing domestic monopoly profits at a predetermined level than a comparable tariff.