Trade Policy with Heterogeneous Traders: Do Quotas Get a Bum Rap?

39 Pages Posted: 27 Jun 2007 Last revised: 18 Feb 2021

See all articles by Kala Krishna

Kala Krishna

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

Ling Hui Tan

International Monetary Fund (IMF) - European Department

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Date Written: April 2007

Abstract

This paper considers the effects of trade policy--tariffs and quotas--when importing is done by competitive traders who are identical ex ante but differ ex post. We show that the standard equivalence results no longer hold and the conventional ranking of tariffs and quotas is turned on its head: quotas are not as bad for welfare as previously believed, while tariffs may restrict trade by more than originally intended. Furthermore, the allocation of property rights (quota licenses) has real effects beyond the distribution of rents; this, in turn, has implications for the effects of corruption on welfare.

Suggested Citation

Krishna, Kala and Tan, Ling Hui, Trade Policy with Heterogeneous Traders: Do Quotas Get a Bum Rap? (April 2007). NBER Working Paper No. w13040, Available at SSRN: https://ssrn.com/abstract=986893

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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Ling Hui Tan

International Monetary Fund (IMF) - European Department ( email )

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