On the equivalence of tariffs and quotas under a revenue constraint

Jiunn Rong Chiou, Hong Hwang, Yan Shu Lin

Research output: Contribution to journalReview articlepeer-review

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Abstract

This paper sets out a duopolistic model to examine the price and welfare equivalence of tariffs and quotas, given the quota rent is equal to the tariff revenue. It shows that the domestic welfare ranking of the two trade policies crucially depends on the relative costs of the domestic and foreign firms; when the domestic firm's relative costs are lower than those of the foreign firm, a quota regime generally leads to a higher welfare level than that of an equivalent tariff regime. This finding contrasts sharply with the conclusions of Dasgupta and Stiglitz (1977), where it was found that a tariff regime always generates higher domestic welfare.

Original languageEnglish
Pages (from-to)343-358
Number of pages16
JournalReview of Development Economics
Volume9
Issue number3
DOIs
StatePublished - Aug 2005

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