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Article
Endogenous Choice of Trade Policy Instruments Under Uncertainty
International Economic Journal (2002)
  • Jean-Philippe Gervais, Laval University
  • Harvey E Lapan, Iowa State University
Abstract

This paper endogenizes the choice between import tariffs and quotas of two policy active countries in a duopsonistic world market. Without uncertainty, import quotas are welfare superior to import tariffs in equilibrium. If two importers can precommit to a type of instrument before deciding the level of the instrument to use in a future period, an import quota equilibrium emerges. We introduce asymmetric risk in the import demand schedule of the two importers. There exists a range of parameters in which a mixed equilibrium emerges; i.e. one country uses a tariff while the other restricts trade with an import quota. The likelihood that both importers choose a different trade instrument in equilibrium is increasing with the correlation coefficient of the two random shocks.

Keywords
  • Tariff,
  • Quota,
  • Uncertainty.
Publication Date
December, 2002
Citation Information
Jean-Philippe Gervais and Harvey E Lapan. "Endogenous Choice of Trade Policy Instruments Under Uncertainty" International Economic Journal Vol. 16 Iss. 4 (2002)
Available at: http://works.bepress.com/jp_gervais/14/