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Tariffs vs Quotas in a Model of Trade with Capital Accumulation *
Author(s) -
Calzolari Giacomo,
Lambertini Luca
Publication year - 2006
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/j.1467-9396.2006.00656.x
Subject(s) - economics , tariff , equivalence (formal languages) , microeconomics , market power , arrow , capital (architecture) , nash equilibrium , open economy , ricardian equivalence , capital accumulation , mathematical economics , international economics , monetary economics , monopoly , fiscal policy , mathematics , profit (economics) , archaeology , discrete mathematics , computer science , programming language , history , exchange rate
This paper examines the equivalence among price‐modifying and quantity‐fixing international trade policies in a differential game. We employ two well‐known capital accumulation dynamics for firms, due to Nerlove and Arrow and to Ramsey, respectively. We show that, in both cases, open‐loop and closed‐loop Nash equilibria coincide. Under the former accumulation the tariff‐quota equivalence holds, while, in general, it does not under the latter. Moreover, in the Ramsey model, the country setting the trade policy (weakly) prefers a quantity‐equivalent import quota to the adoption of the tariff. These results are not a consequence of the equilibrium concept we adopt (with and without market power), but directly follow from the interplay between market power and the properties of accumulation dynamics.