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Title: |
Tariffs versus Quotas under Uncertainty:
Restricting Imports and the Role of Preference |
| Author: |
Lapan, Harvey
E.; Choi, E. Kwan |
| Author
Affiliation: |
IA State U |
| Source: |
International Economic Journal, Winter 1988, v. 2, no. 4, pp. 35-55 |
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Publication Date: |
Winter 1988 |
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Abstract: |
This paper analyzes trade policies for a
small country facing foreign price uncertainty and domestic production
disturbances. The import-induced externality provides a rationale for
trade restrictions. When the terms of trade are uncertain, the optimal
composite tariff may require a negative ad valorem tariff, but dominates
the optimal quota. Moreover, a production subsidy/tax may be combined
with a specific tariff, but not with a quota. A general ranking of
quotas versus tariffs in the presence of domestic uncertainty depends
upon the price elasticity of demand for the importable and the
curvatures of the indirect utility and the external damage functions. |
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