What Do Voluntary Export Restraints Do?

32 Pages Posted: 5 Jul 2004 Last revised: 21 Feb 2021

See all articles by Kala Krishna

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1988

Abstract

This paper has two aims. First, to examine alternative ways of modeling VERS in imperfectly competitive markets. This is important, since the. effects of VERS are sensitive to the models used. Second, to argue that the effects of VERS also depend on whether goods are complements or Substitutes. This point is illustrated by extending the model of Krishna (1983) to allow complementary goods to be produced by domestic and foreign firms. If goods are substitutes, VERs et at free trade levels raise all profits, while if they are complements, the VERS have no effect. Thus tariffs and quotas are fundamentally non-equivalent under Bertrand duopoly when substitute goods are produced, but are equivalent when complementary goods are being produced. This is contrasted to the case of Stackelberg leadership. Th. importance of specifying the effects of any restriction on the payoff functions of agents and using this to analyze its affects on equilibrium of the game is emphasized.

Suggested Citation

Krishna, Kala, What Do Voluntary Export Restraints Do? (June 1988). NBER Working Paper No. w2612, Available at SSRN: https://ssrn.com/abstract=428355

Kala Krishna (Contact Author)

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