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Title: |
Endogenous Choice of Trade Instrument under
Uncertainty |
| Author: |
Gervais,
Jean-Philippe; Lapan, Harvey E. |
| Author
Affiliation: |
Laval U; IA
State U |
| Source: |
International Economic Journal, Winter 2002, v. 16, no. 4, pp. 75-96 |
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Publication Date: |
Winter 2002 |
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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. |
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