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The Nonequivalence of Tariffs and Quotas in a Dynamic Trade Model
Author(s) -
Konieczny Jerzy D.,
Waschik Robert G.
Publication year - 1999
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00184
Subject(s) - economics , tariff , value (mathematics) , microeconomics , dispersion (optics) , argument (complex analysis) , econometrics , international economics , mathematics , biochemistry , statistics , physics , chemistry , optics
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.