Non-equivalence Of Tariffs Research Articles

Costly distribution and the non-equivalence of tariffs and quotas

When governments impose a quota or tariff on imports, it is well known that the resulting rents and revenues trigger costly rent-seeking and revenue-seeking activities, which are welfare-reducing and may be economically more significant than the efficiency losses resulting from the protectionist-induced resource misallocation. Repeated interaction among firms can eliminate wasteful rent- and revenue-seeking expenditures through cooperation. We show that while aggregate outcomes are equivalent under tariffs and quotas if cooperation arises, the conditions under which cooperation arises differ by policy. This difference arises because a firm must incur additional cost to physically import and distribute the goods associated with additional quota licenses, whereas there is no such cost when it comes to consuming additional tariff revenue. Thus, quotas and tariffs are non-equivalent. We provide a simple sufficient condition under which cooperative elimination of rent-seeking under quotas is easier than cooperative elimination of revenue-seeking under tariffs and therefore a quota is the preferred policy whenever the policy admits cooperation.

Technology adoption: on the non equivalence of tariffs and quotas

This paper examines the effects of trade policies on the adoption of new technologies. A two-sector model with international-trade is developed where technological progress is neutral. A group of interest (suppliers of skilled labor), acting in coalition, decide which technology will be available for firms. The key findings are the following. With free trade, or a tariff, the best technology is always used; Under a quota, generally the best technology is not used. In other words, with respect to adoption of new technologies we have equivalence between free trade and tariffs. A quota generates resistance to new technologies while with free trade or tariffs this resistance is eliminated.

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.

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.

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

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.

Economic issues in tariffication: an overview

Abstract The agricultural trade liberalization proposal known as ‘tariffication’ aims at converting all existing non-tariff barriers (NTBs) to trade into bound tariffs, and to reduce these tariffs over time. This is in tune with the original philosophy of the General Agreement on Tariffs and Trade (GATT) and it calls for a dramatic overhaul of existing agricultural policies in many developed countries. The main economic issues that arise with tariffication stem from the non-equivalence of tariffs and NTBs in a number of scenarios. This paper analyzes non-equivalence arising from the existence of: imperfect competition in importing countries; price instability in importing and exporting countries; and, inefficient allocation of quantitative restrictions. It is shown that in all these cases the definition of an appropriate ‘equivalent tariff’ to be used in tariffication is not straightforward, and that in general this equivalent tariff cannot be computed on the basis of only observed price differences between countries. Tariff-rate quotas, which are meant to be the main tool of implementation of tariffication according to the existing proposal, are analyzed in some detail. Concerning the relationship between tariffication and the other elements of the trade liberalization package, it is shown that tariffication would limit the scope of export subsidy policies. It is also shown that the existence of production and export subsidies makes observed price gaps between countries of questionable value in setting equivalent tariff levels. Finally, it is argued that the main focus of tariffication should be the conversion of NTBs to acceptable long-run (bound) tariffs rates, and considerable flexibility in this conversion process could be exercised in the transition period.

Trade Restricting Policies Under Uncertainty and a Differentiated Duopoly

This article provides analyses of several trade restricting policies under uncertainty and duopoly with differentiated but substitute products. It considers non-equivalence of tariffs and quotas when the behavior patterns of both producers are endogenously determined in this situation. It also examines how the price setting strategy of oligopolistic competition affects the results of non-equivalence of tariffs and quotas and the welfare and protective effects of other policy alternatives. [410]

The Small Country Assumption in Well-Behaved International Financial Models

Falvey, R.E. (1974) 'A note on the distinction between tariffs and quotas.' Economica 42, 319-26 Fishelson, G. and F. Flatters (1975) 'The (non) equivalence of tariffs and quotas under uncertainty.' Journal of International Economics 5, 385-93 and A.L. Hillman (1979) 'Domestic monopoly and redundant tariff protection.' Journal of International Economics 9, 47-55 Johnson, H.G. (1960) 'The cost of protection and the scientific tariff.' Journal of Political Economy 63, 327-45 McCulloch, R. (1973) 'When are a tariff and a quota equivalent?' This JOURNAL 6, 503-11 Rodriguez, C.A. (1974) 'The non-equivalence of tariffs and quotas under retaliation.' Journal of International Economics 4, 295-8 (1976) 'On the second best optimality of tariffs in the presence of schedules.' This JOURNAL 9, 301-8 Shibata, H. (1968) 'A note on the equivalence of tariffs and quotas.' American Economic Review 58, 137-42 Sweeney, R.J., E. Tower and T.D. Willett (1977) 'The ranking of alternative tariff and quota policies in the presence of domestic monopoly.' Journal of International Economics 7, 349-62 Tower, E. (1977) 'Inelastic offer curves, stability and the difference between tariffs and quotas.' Atlantic Economic Journal 5, 64-7 (1978) 'The optimum incentive schedule tariff.' This JOURNAL 11, 726-33 Vandenthorpe, A.L. (1974) 'On the theory of non-economic objectives in open economies.' Journal of International Economics 4, 15-24

The nonequivalence of tariffs, import quotas, and voluntary export restraints

This paper compares the equilibrium levels of prices, imports, production and consumption under a tariff, an import quota, and a voluntary export restraint when each trade restriction is set so as to lead to the same quantity of imports. Competitive, domestic production monopoly, import monopoly, and export monopoly cases are examined. Voluntary export restraints are shown to have different effects than import quotas or tariffs, especially when some potential exporters remain outside the agreements.

When Are a Tariff and a Quota Equivalent?

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.