Carnegie-Rochester
Conference
Series
on Public
Policy
26 (1987)
191-216
North-Holland
WHYDO GOVERNMENTS
PREFERNONTARIFFBARRIERS?
ALAN V. DEARDORFF*
The University
of Michigan
INTRODUCTION
It
has
restrict
the
become
use
of
other
(NTBs)
include
export
restraints
such
tariffs
have
address
deal
this
the
influence
measures
This
a preference
in
and
as more
There
prefer
*I
students
have
Many
in
international
conference
on
ccxnments
from
supported
in
seems
at
be
is
benefited
useful
trade
in
here,
Indeed,
to
paper
to
quotas,
their
prices
question
to
replace
since
trade
other
to
like
a related
is
price
economists
theorists
forms
the
world's
governments
only
to
replace
them
to
the
greatly
comments
et
recent
0 167 - 2231/87/$03.50
at
a grant
(1985)
al.
true
that
from
discussions
were
also
provided
economic
Michigan,
at
Brunner
by
answer
undoubtedly
theory
Karl
part
Nogues
urging,
single
an
international
trade
seminar
‘See
of
than
us
latter.
this
rather
come
tariffs
perverse
our
no
It
used
the
of
NTBs,
have
for
alternatives
purpose
alone,
voluntary
requirements,
various
trade
question
for
quotas,
prices
by
barriers
content
cormK)n
traded
to
years
are
of
trade
that
with
they
barriers
we
onerous.
can
NTBs.
paper.
through
the
more
tariffs
nontariff
as import
is
goods
preferring
it
tariffs
the
restricting
important
show
reduced
regard
an
it
of
of
in recent
domestic
and
of
trade
unanimous
intervention,
have
is
quantities
of
tools
ask why these
many
use
These
policy.
to
question.
the
replaced
controls,
reasonable
Since
that
gradually
policy
exchange
be preferred,
tariffs
nearly
coinnercial
come to
nonprice
generally
been
is
with
measures.
of
heterogeneous
It
recognize
has been
(VERs),
directly
while
to
trade
tools
and many more. '
why
commonplace
international
the
and
from
for
University
Michael
the
Ford
policy
in
of
question
a variety
with
Robert
on an earlier
1987
Elsevier
of
M.
why
governments
reasons
Stern
draft
contribute
in
of
the
preparing
paper
by
in
class
and
by participants
the
Carnegie-Rochester
Conference,
the
Western
grateful
Mussa.
The
Ontario.
research
underlying
this
this
my
graduate
and
I am especially
paper
in
a
for
was
Foundation.
a mOre
complete
discussion
Science
Publishers
B.V.
of
years.
0
of
(North-Holland)
the
variety
of
NTBs
that
have
to
any particular
use of
intervention
have
make
for
a case
Instead
can
be
suggestions
would
not
that
at
divide
of
built
among
various
country
the
into
forms
rent-seeking
among
behavior:
them
reasons
are
dominate
trade
story.
In
more
United
policy
of
in
the
the
NTBs that
I have
constraints
such
interactions
structure;
ways
policies
to
among policies
quite
by looking
constitution;
trade
Nor
are
begin
for
extent
many
luxury
elsewhere.
institutional
the
too
the
ideas
I will
States
are
them
rigorously
and market
policies
in telling
But
cases
than
answers
additional
apparatus.
preference
against,
interesting
policy.
elaborate
of
that
of
which
they
in the
ways
one
another
engender
that
they
that
some
world.
are
many
the
include:
and differences
correct
most
two parts.
for
one of
analytical
into
These
trade
to
process.
of
There
any
been analyzed
or retaliate
in an uncertain
These
for
reasons
of
to,
permit
have
GATT and the
differences
perform
of
the
policy
a number
trade
attempt
a variety
as
an elaborate
discussion
literature.
may react
country;
of
others
miscellaneous
from
as are
the
the
discussion.
to
necessary,
the
of
not
independently.
space
be
of
discussing
as well
technical
by means
instances
I will
theory
approach,
literature
a small
while
a list
gleaned
the
different
Thus
or
in
really
I will
explanation
be a very
expounded
straightforward,
and that
differently.
an eclectic
in
be covered
being
policy
have come to mind
will
to
single
take
found
that
This
ideas
of
any
I will
that
trade
been motivated
I
themselves,
of
the
part
I am also
think
they
in
sure
that
need
to
story
of
that
they
these
be,
and
why NTBs are
do not
reasons
and I will
I am sure
are
tell
more
express
coming
the
to
whole
subtle
and/or
my reservations
as
I go along.
In
the
attention
NTBs:
that
of
the
the
affected
to
believed,
of
explanations
will
preference
for
NTBs stems
can have
the
such
both
imports
will
not
injury
tariff,
desired
will
and that
effect.
a perception
in
and
that
the
focus
is
unabated
that
it
may not
few
words
part
using
Somehow
a
it
is
imports
that
seems
to
in
spite
of
any
quantitative
discuss
for
my belief
on the
public,
job.
my
preference
It
perception
of
an explicit
therefore
suggest
the
flood
continue
I will
for
work.
do the
the
only
therefore
and in the
fact
that
will
not
from
in government
or otherwise,
domestic
sized
I
of
parties,
class
paper
simply
reduce
causing
the
tariffs
rationally
reasonably
it
part
that
perception
much of
behind
main
on a much narrower
the
tariff
be
second
restriction
a variety
of
reasons
be as unwarranted
sounds.
Before
proceeding
I
should
say
192
a
about
why
I
believe
as
governments
restrict
principle
to
been
quite
from
the
the
use
of
ideas
domestic
trade
intervention.
based
on maximizing
a "public
of
of groups
of
of
the
trade,
lie
of
trade
are
so,
prevent
even
a second-best
them,
of groups
consumers
intervention
erected
to
that
all
means
however,
to
of
and
as
and
proceed
or,
more
in
are
if
invoke
the
in
avowed
troubled
part
of
raise
the
through
the
in
and
terms
I see
nature.
profits,
and,
One can
trade
does
real
I
have
little
are
based
argue,
policy
no good
the
the
wages
though,
defensive
wages
It
for
fact,
valid,
them.
as
to
unemployment.
objectives
are
relevance.
least
In
losses
achieving
at
firms,
much
reasons
firms
be used
of
as
prevent
these
and
together.
bankruptcies
when
seen
in
of
need to
is used
workers
is
valid
instances
questionable
intervention
toward
while
they
of
recently
profits
these
welfare,
is of
the
most
that
range
a host
to
for
extent
of
through
ideas,
in
have
These
monopoly
in principle
profits
of
trade,
these
that
livelihoods
so.
reasons
social
trade
could
the
welfare
of
the
of
competition
intervention
barriers
correctly,
the
import
instances
more
notion
most
of
real
to
theorists
doing
divert
Many
be the
opposition
trade
distortions,
to
of government
that
for
terms
policy
their
trade,
domestic
addition,
a general
workers,
the
with
to
of
restrict
government.
arcane
protecting
Trade
improve
trade
theory
where
dismiss
dealing
I believe
trouble.
most
for
In
interest"
industries
even
rationales
as too
Instead,
Trade
generating
or
I view
purpose
in
using
residents
theory,
spite
to
to
for
In
all.
any policy
tariffs
policies
developed
at
of
creative
second-best
most
trade
use
motives
is
at
merely
for
to
protection
elsewhere.
Therefore,
explanations
of
objectives
that
explain
what
sophisticated
as
will
the
preference
I
believe
clear,
for
are
policymakers
economic
do in their
become
NTBs that
farfetched.
themselves
models
and
We are
do,
limited
patience
trying,
and
not
exposure
to
with
on policymakers'
after
what
the
we,
real
all,
to
with
world,
our
would
place.
I m ASSORTEDREASONSFROMTHE LITERATURE
In this
preferred
they
to
do not
are
not
of
them
based
are
section
I will
tariffs,
the
only
the
section
belong
in
on doubts
based
to
discuss
about
a variety
really
the
some degree
which
ability
conmron
of
reasons
thread
follows.
on contributions
193
of
why NTBs might
among
which
That
is,
to
reduce
tariffs
that
can
these
is
that
reasons
trade.
be found
be
All
in
the
literature,
though
authors
Much
of
or
contribution
on
perfectly
a quota
vice
versa,
also
to,
competitive
markets,
quota
for
imply
equivalence
have
the
effects
This
result
of
alternative
scenarios
This
one
them
or
reasons
domestic
Bhagwati's
in
which
equivalence
case,
of
seminal
that
with
quotas
are
can
and the
the
That
be achieved
price
and/or
has
stimulated
size,
rent
With
that
a tariff
for
from
the
imperfectly
and a
industry
cause
and a quota
that
example,
on the
and
a tariff
domestic
imports,
the
fails.
that
tariff
facing
this
level
will
of
are
the
really
other.
reasons
others
and
briefly
quotas
surveyed
and some of
why one or the
potentially,
and
differences
tariffs
is
(1984),
and quotas
prefer
In
noted
of an appropriate
the
demand
quantity
literature
and Corden
tariffs
of
The
who
same individuals.
the
of
have
production
market.
equivalent.
(1983)
a tariff
hand,
down.
on the
by their
issue
quotas.
tariffs
that
the
the
same results
from
by,
other
break
on the
domestic
revenue
elasticity
to
same effects
different
in the
the
and
(1965),
the
with
spent
been viewed
with
tariffs
competition
as the
on the
identified
Bhagwati
exactly
be achieved
and are
always
everywhere,
imperfect
so long
this
of
was
competition,
can
accrue
been
markets
with
perfect
with
has
subject
not
NTBs.
nonequivalence,
this
but
with
have
for
literature
competitive
equivalent,
quota
contributions
rationales
this
equivalence,
is,
these
as providing
it
Reasons
for
other
policy
why governments
will
there
might
might
if
be no reason
to
therefore
in
be
for
be preferred,
show bias
to
on below,
can
nonequivalence
for
and Srinivasan
be touched
then
search
fail
in Bhagwati
will
equivalent,
to
carry
with
and therefore,
their
selection
of
policies.
A.
INSTITUTIONAL
CONSTRAINTS
A first
to
reason
nonetheless
be
the
instances:
Institutions
proximate
tariffs,
and
measures
by default--of
of
institutions
these
in
which
nation
including
(MFN)
sovereign
within
thus
lead
the
United
been
the
that
any
to
their
other
trading
government
preference
that
search
for
Agreement
change
the
the
do with
in
such
to
other
on Tariffs
institutions
world,
such
that
relegates
194
but
for
in
NTBs
the
be done
also
as the
many
use
of
far-reaching
and Trade
rules
may
means--nontariff
The most
rigid
tariffs
economics
constrain
objectives.
themselves
But
to
erected
General
comnit
States
of
policymakers
is
of
little
cause
achieving
basis.
countries
has
have
signatories
tariffs,
consider
in
(GATT),
the
use
of
on a most-favored
exist
within
separation
to Congress
of
the
the
powers
power
to
levy
tariffs
means,
It
as
sole
examine
to
on to
such
First,
to
configured
possibility
that
the
for
the
of
the
use
first
of
NTBs.
to
because
though
less
tariffs.
to
were
both
GATT,
other.
not
United
do not
is
constrain
glance.
effects
States
of
law,
that
provisions
permit
countries,
a timely
provisions
cases,
though
are
to
as dumping
that
these
and there
have
been
institutions
used,
of
to
permits
are
perceived
have
195
bind
willing
to
willing
to
by
formed.
principles
of
and not
has
and
nothing
the
to
domestic
nearly
as much
United
States
to
The
do
use of
escape
a duty
of
to
permitted
too
the
clause
when
of
it
can
Similar
practices
subsidies.
On the
in a surprising
the
may
there
with
trade
cumbersome
that.
as it
injury.
as unfair
are
legal
law,
deal
use of government
and furthermore,
would
to
GATT was
that
any
frequently,
the
cause
some truth
in
quotas,
used
one rule
duties
the
provisions
were
of
less
used
the
policies.
and the
is
been
the
be explained.
tariffs
using
framers
use
use
is
violate
GATT and
trade
what
the
precisely
to
much
break
a substantial
such
of
than
been
been
international
the
example,
responses
fashion,
the
for
the
countries
than
quotas
needs
for
and
imports
may be argued
these
trade
open
the
tariffs
the
since
to
for
use
two
why these
severely
generally
have
increases
both
is
uncritically
that
member
language
chose
provisions
trade
of other
the
is
wished
have
these
Within
specific
they
ever
still
that
the
have
industries,
therefore
too
more
that
they
be a preference
point
be established
It
must
the
it
reflection
accept
tariffs
ambiguous
tariff
of
leaves
GATT do constrain
why countries
job
on
question
a
as
pass
whose
therefore
ask why it
restrictions
non-MFN
such
and thus
GATT regarding
countries
many
the
that
the
other
unsatisfactory
would
of
the
on tariffs,
ask
it
policies
while
and
second
disruptive
the
for
tariffs.
case
of
more
GATT and which
several
the
and with
in
quotas
first
be
of
and
institutions
seem at
in
not
be
themselves
use
discipline
articles
one must
The
the
NTBs,
and
one must
Quantitative
The answer
the
are
points,
constraints
countries
Since
are
it
quotas.
were,
use of
search
scholars
unanswered
they
constrain
the
the
do so for
with
these
Nonetheless,
submit
would
the
the
firmly
That
And second,
to
fact,
political
leave
as
to
arrangements
for
or
NTBs.
Might
tariffs
In
preference
prevent
to
submit
case?
the
of
GATT chose
willing
many
using
branch
trade.
institutional
institutions
institutions
On the
the
legal
do so would
were
that
for
the
institutions.
institutions
preference
administrative
of manipulating
acknowledge
reason
explanation
accounts.
the
means,
be easy
the
of
leaves
nontariff
would
these
task
to
and
again
use of
to
be used
other
hand,
number
a tariff
of
to
protect
domestic
NTB.
For
the
U.S.
1974
affirmative
on
measure
in
tariffs
to
NTBs out
B.
2
I
markets
He considered
which
a
as
helps
price.
quota,
on
between
tariffs
suffice
to
above
quotas
welfare,
Jackson
of
or
action
nontariff
a voluntary
the
often
use
resort
in
leaves
than
from
price,
moves
up the
leads
imperfect
when
will
to
the
a single
cause
price
it
facing
a
as a perfect
domestic
other
firm,
sales
it
asymmetries
a tariff
albeit
A
raise
only
price
the
loss
Thus
curve.
which
such
a fixed
fixed,
to
demand
in
by
competitor.
firm
in
two policies,
as
domestic
world
domestic
discussion.
cause
the market
to be
this
situation
a tariff,
sacrificing
the
the
the
market
same amount
imply
a government's
is
the
can
act
the
as
a
in
behavior
that
as that
a quota
which
will
raise
the
domestic
tariff.
story
it
the
world
of
the
the
this
allows
a protected
turn
of
whether,
and quotas
is
above
behave
nonequivalence
by
price
to
firm
of
motivate
firms
In
trade.
but
it
on
question
there
firm
the
as
case
focused
the
continues
hand,
original
which
foreign
free
domestic
it
the
does
of
is
domestic
demand
by more
being
any
do permit
(1965)
in which
number
as there
far
will
industry
the
imports
What
the
other.
example
large
This
restricts
one or the
other
the
2See
difference
the
the
monopolist.
social
raises
long
provides
indicate
and
quotas,
the
domestic
price
and
naturally
Thus
arbitrarily
form
an
in
a duty
was
nonetheless
tariffs
raises
higher,
governments
example
a domestic
amount,
to
cases
institutions
Bhagwati's
simplest
merely
decided
arrangement,
the
to
to prefer
Bhagwati's
in
of
201 of
some
necessity.
imperfect,
competitive
instead
Section
led
the
of
of
governments
marketing
and that
out
of
included
that
made
under
28 were
have
ten
action
appears
alluded
His
are
quota
it
not
already
competition.
of
the
1984,
could
only
an orderly
Thus
and
these
in
been
filed
COMPETITION
nonequivalence
which
these
of choice,
have
of
fact
on some occasions
IMPERFECT
but
in
of
has
cases
1974
All
but
as a quota,
restraint.
of
between
ITC.
seven
such
export
the
use
55 escape-clause
act
imports,
and
deliberate
of the
trade
by
imposed
taken
industry,
example,
clear
about
point
that
the
relative
of
a government
(1985).
196
view?
should
desirability
From
the
prefer
of
standpoint
tariffs,
tariffs
of
since
for
a given
to
monopoly.
amount
pressures
that
groups,
if
are
then
firm
this
than
to
such
since
not.
In
is
actually
that
interests
of
given
level
causes
comparison
the
harm
of
of
larger
profit
political
explain
preferred.
thus
Hillman
This
arises
then
the
in favor
in
this
they
model,
seldom
other
of
become
provide
NTBs.
do
present
in
out
that
this
quota.
it
requires
just
described
and
the
quotas
also
imports
but
in
the
generates
will
the
acquire
simplest
the
form
quotas
does
could
be
support,
raises
with
proceeds
are
the
its
kept
consideration
a case
by
using
be administered
trade
can
for
in
a
proper
implicit
which
additional
it
A
tariff
it
the
for
firm,
of
been
Thus we do find
that
the
political
that
off
price.
its
The
and while
for
in
quotas,
trade
firm;
model
to
revenue
off
must
the
show that
not
in
case
addition
the
(1985)
pursued.
Hillman's
a
correct,
being
the
model
rather
tariffs,
had
that
this
for
the
but
of
fertile
will
on the
Krishna
issue
model
price.
It
turns
in
for
at
monopoly,
competition
with
various
in
exploring
only
the
turn
quotas
a way that
that
course
there
be
considered.
could
noncompetitive
market
recent
and
the
one
and of
such
years,
effects
model
of
structures
these
models
various
here,
are
since
trade
it
bears
hand.
has
examined
which
two
out
one of
industry
consider
(1985)
duopoly
models
growth
ground
I
is
imperfect
trade
a minor
policies.
directly
of
and
some
same level
as
out
The
devote
is
higher
the
quotas.
to
for
profits
not
for
aims
protected
a
interest
former.
Hillman
the
case,
turns
auctioned
turns
forms
Construction
has
it
of
the
are.
The model
many
is
and
to
a quota
arguments
greater
Therefore
the
due
but
and
via
government
yield
when,
from
these
the
that
it
about
a quota
to gain
of
Cassing
preference
government,
balance
in
concerned
If
it
through
that
In
(1973),
and
is
policy.
yields
support.
Cassing
protect
one
consumers
price.
and
the
government
a quota
policies
of
McCulloch
greater
those
to
two
level
analysis
not
imports
is
same
to
responsive
against
lobbies
expected
a preference
not
good,
a rationale
Cassing
to
is
politically
consumers
of
rise
revenue
by
be
of
paper,
gives
a
greater
first
a recent
them
distortion
social
would
government
the
additional
the
provide
has so much more
while
the
to
upon
example,
its
it
bear
seem to
for
as government
reason
to
would
persuading
a model
as long
not
brought
Surprisingly,
is
avoid
above,
a tariff,
second
these
respond
model
described
resources
protection,
governments
of
But
that
the
firms
a quota
role
from
of
quantitative
different
on one firm's
197
restrictions
countries
exports
into
in a
compete
the
other's
on
market
can raise
that
the
limiting
what
model
Krishna's
beneficial
This
firms
example
in
the
a
correct
the
same
price
by less,
than
has
does
on profits
of
to
conclusion
will
the
tariff,
however,
the
in
Krishna’s
the
quota,
yields
this
and
at
same
to
the
outcomes
the
expected
leave
the
a
of
value
that
the
price
issue
the
in
of
to
that
is
of
the
firm
have
like
again
a greater
the
for
done
they
do
domestic
good
evolves
that
have
that
a tariff
model
Cassing
on models
seem
NTBs.
in the
the
effect
of
4
tariffs.
not
by
the
so far
prefer
prices
raising
positive
simpler
been
that
the
the
analysis,
of
two policies
once
than
raising
domestic
of
since
a quota
on
effect
out
has
is
the
which
I
may
be
to
further
right
future,
of
as
to
the
domestic
the
the
be
needed
an
for
to
yield
It
will
whether
of
a
be
this
to
be
factor
below.
198
in
firm,
to
the
favor
of
firm
(to
fir-m’s
Since
make
are
in
the
A
prices),
reaction
this
the
unchanged.
higher
curve.
is
consumers
difference
domestic
equa I
to
Letting
follows.
firm
inclusive
of
the
same foreign-firm
by the domestic
firm,
quota.
additional
the
right
domestic
does
would
assumed
the
curve
along
have
discussion
curve
seen
as
foreign
an equilibrium
at
charged
randomly
firm
strategy
additional
can
be
of
the
reaction
tariff
have
an
this
price
reaction
achieve
two prices
policies
mixed
the
the
domestic
two
a
action
from
raises
the
a preference
model,
the
can
larger
profit.
a larger
only
of
to
in
and Hillman
and that
governments
firm’s
up and
quota,
to
and
a tariff
lower
of
profit
4The
uncertainty
3,
Thus
represent
foreign
equilibrium
Diagram
lead
equilibrium
will
Nash
that
will
that
why
Krishna’s
contours
the
Cassing
turns
literature
diagram
shifts
would
to
it
(1985)
be revised.
with
her
isoprof
the
consumers
in
3
work
as this
familiar
axis
tariff,
moves
the
need to
those
raise
a quota,
depends
consider
It
predicts
for
see,
to
quota
for
gain
the
has
and we must
firm.
to
gain
by more,
competition
interesting
of
a case
more
a tariff
good
model
imperfect
by
the
as a strategy
the
a tariff
on consumers
from
explanation
in
welfare.
domestic
compelling
3For
foreign
Krishna
My conclusion
with
be to
a quota,
the
the
is
which,
both
duopoly,
a course
suggest
have
as
case
same effect
and Hillman,
to
outcome
and Spencer's
Cournot
again
and
this
the
to
model
once
on consumers'
the
horizontal
the
would
In
of
same effects
trade
of
comparison
domestic
enables
As in Brander
be credible
seems
consumers,
amount.
firms,
firms
not
again
However,
to
the
this
practice"
alone.
situation
price
the
of
would
once
tariff.
domestic
which
but
the
a two-country
one
own interest
of
would.
in
for
a "facilitating
one
otherwise
The reason
firms.
as
of
a tariff
both,
both
acts
commits
to
in its
from
they
of
model
acting
of
aggressiveness
above
similar
profits
restriction
the
prices
the
trade
and
lhus
price
as
and this
preferable
for
indifferent,
that
the
quota
and
leads
which
charges
a random
price
due to the
tariff
.
price
This
one
but
policy
or
the
other,
I
C.
RETALIATION
In
one
of
the
nonequivalence,
Rodriguez
competition,
tariffs
attempt
to
other's
use
expense.
but
outcome
the
difference
is
the
levels
This
not
export
implemented
by
are
likely
that
the
quota
country,
This
the
restricting
could
such
use
to
defensive
next
is
On the
does
noted
in
but
lead
countries
dynamic
asymptotically
of
seek
market
the
improving
because
to
importing
they
are
the
remain
fact
in
the
in return
as long
not
rents.
For
terms
of
must
improve
protection
for
that
as the
require
the
example,
one
trade,
since
with
for
other
will
trade
it
a
is
VER.
reasons,
be discussed
a VER may actually
of
a
use
themselves.
VERs,
terms
the
from
does
that
the
follows
disruption
fact
its
of
place
the
such
that
restrictions
use of
trade
two
and
benefit
thus
deter
a plus.
hand,
Bhagwati
the
of
the
suggest
government
or
improve
that
by
surely
other
to
then
the
first
revenues
terms
avoidance
country
retaliation
the
whose
section,
the
the
quotas.
quotas
firms
in
positive-trade
prefer
presumed
its
can
cannot:
between
behest
turn
by
for
in
collect
extent
the
exporting
5As
to
the
in
tariffs
quantitative
exporting
argument
restriction
a VER as a tool
the
in
equilibrium,
collected
by the
country
as the
further
being
any
might
import
the
lower
does
a VER are
earned
be a valid
in
quotas,
quotas
suggested
at
This
by
game with
each
Johnson
purpose,
our
often
are
and
either
trade
exporting
However,
retaliation.
generated
country
hardly
to
but
tariffs
by
for
however,
is
at
using
asyrmnetry
which
or being
seems to
for
It
country
both
rents
than
itself,
NTB.
(VERs),
over
tariffs
necessarily
why governments
of
exporting
lead
licenses,
reason
the
the
are
perfect
trade
game with
of
governments
possible
the
particular
by
form
restraints
chosen
to
exporting
export
retaliation
of
for
the
equilibrium
this
with
if
terms
is
while
trade,
any reason
one particular
voluntary
less
of
that,
countries
quota
suggest
the
Unfortunately
is
both
even
described
positive
Therefore
issue
for
country,
quota
of
autarkic)
does
reason
cases
example
equivalent
process
same.
with
be
influence
was
Bhagwati's
that,
not
a similar
the
two
equilibrium.5
policies
the
not
the
welfare
(asymptotically
tariff
of
that
a Nash equilibrium
and
to
a process
showed
between
will
reactively
to
showed
quotas
Such
Rodriguez
sequels
(1974)
and
them
(1954).
attain
better-known
while
and
this
Srinivasan
process
toward
of
is
(1983).
each
country
autarky.
199
a valid
the
quota
setting
justification
game
its
does
quota
not
based
for
actually
on
this
hsve
the
oKer's
an
particular
form
concerns
with
to
of
this
restrict
benefits
using
to
would
trade?
exporting
same
in
additional
preference
incentives,
and
retaliation.
D.
the
exporting
and
case.
thus
difference
between
do so via
the
it
seems
been
induced
an export
have
anything
tax,
done.
that
rather
not
dealing
to
controls
that
for
normally
disincentive
again
does
something
not
issue
has
as is more
Once
is still
related
measures
country
does
quantitative
preference
another
nonprice
restriction
country
this
The
retaliate
there
is
than
price
to
do
an
with
to be explained.
RENT SEEKING
another
and memorably
to
under
import
granted
potential
an
amount
imposed
that
an
but
can
quota
rent-seeking
rights.
not
by
to
phenomenon
value
the
noting
by the
more
that
important
associated
one,
with
from
the
Srinivasan
agents
can
of
just
us
quota
that
that
is
(1980)
compete
for
as they
can
view
the
still
and therefore
quotas
the
resources
and
most
as
among
to society
revenues,
that
simply
viewed
real
rents
out
rights
are
somehow
cost
tariff
I suspect
but
uses
Bhagwati
tariffs,
as the
cost
of
pointed
since
competition
competition
a tariff.
But
are
for
an additional
be financed
rents.
additional
Such
the
was
that
off,
that
incentive
constitutes
argument
that
for
these
quotas
auctioned
firms
and
a tremendous
loss
the
benefits
normally
may approach
a quota
extended
compete
of
and
She observed
(1974).
not
individuals
and this
by
are
creates
recipients
themselves,
have
to
a quota
tariffs
by Krueger
a quota
outright
deserving,
as
about
use
ask why it
either
forcefully
the
once
for
There
Yet
in
nothing
a quantitative
the
be the
For
one could
exports,
than
says
why do governments
international
rather
it
NTB,
paper:
accept
deserves
it
to
be
considered.
What
quotas?
does
rent-seeking
Clearly
distinctly
from
inferior
involved
are
customarily
As
to
measure
much
for
mentioned
Along
with
for
corruption,
to
than
beneficiaries
allocate
can
relatives,
than
far
the
in
rent-seeking
gives
levying
of
between
tariffs
rent-seeking
the
additional
the
and
makes
quotas
resource
dead-weight
costs
losses
that
we
and quotas.
government
lucrative,
choice
view,
than
governments
licenses
more
the
larger
tariffs
if
the
of
since
rent-seeking
of
import
be
both
before,
optimum.
about
point
tariffs,
potentially
opportunity
as the
say
a social
do
not
always
some countries
goes
officials
for
tariffs
200
That
is,
or
their
officials
themselves
could
a
an
ever
themselves
the
discretion
a degree
be.
In
social
attractive
can position
behavior.
government
pursue
of
power
friends
and
societies
where
such
corruption
find
a preference
Thus
is
a "bad,"
but
being
for
quotas
to
is
reason
in
for
that
the
are
seems
a "good"
however,
corruption
natural
that
one would
reason
using
this
major
for
using
I hope
quotas.
explanation
of
industrialized
well-established
tariffs,
and
that
the
I am
preference
countries,
and effective.
where
Thus
there
to explain.
UNCERTAINTY
Finally,
trade,
I turn
a feature
trade
over
formal
quotas
may emerge
of the
results.
stabilize
real
fall
a quota
constant,
A
is
second
Their's
is
divide
then
able
to
the
world.
that
is
Thus
quotas
in
it
these
is
tariffs,
added
and
thus
this
(1980))
shown
tariffs
outcome,
but
recent
example
is
equilibrium
into
both
of
a
properties
surprisingly,
to a quota,
ultimately
models.
of
risk
a
the
the
is
optimal
relating
aversion
uncertainty
201
been
flavor
they
be optimal.
price,
on
and
expected
attempts
to
rise
and
prices
Neither
at
In
a tariff
least
holds
both
to a tariff.
and
Lloyd
distinctive
and
are
leads
consumer
from
price
of risk
to
group,
are
standpoint
the
state
by
a policy
of
aversion.
a preference
outside
they
They
the
to
promoted
because
originates
that
studied.
policies
(1985).
in
a
being
domestic
that
here
in which
policy
group
industry
is
has
the
world
import
by
deal
in which
ceiling
Falvey
producer
interests
again,
it would seem,
Whenever
to
a quota
that
it
issue
a model
be low.
of
producer
in
as functions
to
model
that
to give
and is preferred
a
surveyed
of
a more
literature,
optimal
since
been
papers
a random
to
that
model
factors
faces
happens
of
Thus
suffice
to
the
subject
the
this
should
requires
optimum
of
from
subject
international
tools.
aversion
price
to the
of
context
of
has
number
policy
an economy
world
the
risk
aversion,
defined
similar
to
been
literature
a
examples
closer
derive
Not
recent
in the
models
analysis
of
a partial
group,
trade
welfare
on ownership
each
optimal
model
their
population
depending
it
consumer
achieves
it
This
and Anderson
income,
when
has
own.
risk
most
same time
within
(1982)
equilibrium
Because
imports
more
uncertainty
from
sophisticated
as superior
maximize
imports.
nor
the
(Young
general
of
and
and Anderson
had previously
to
its
of
absent
the
includes
Two of
Young
at
the .choice
most
undertaken.
consideration
been
of
and
with
the
seeks
but
literature
explicitly
their
the
has
years
(1984)
that
to
that
the
specialized
Pomery
of
both
relevant
something
therefore
tariffs.
valid,
think,
not
against
it
over
provides
nonetheless
naive
is still
E.
quotas
rent-seeking
not
checks
commonplace,
for
for
a country,
through
randomness
quota
can
insulating
clear
the
case
and stands
Even
candidate
in
of
that
is
chosen
is
known.
come
choice
must
good
of
protection
I see
trade
in
place
in
is
for
the
that
no uncertainties
future
expect
to
but
what
I think
most
II.
must
preferring
of
part
I believe
the
by
most
often
for
the
a
individuals.
they
are
from
not
which
a reaction
events
are
of
world
a bad one,
This
barriers
had taken
is
not
to
erected.
a
say
But
improvement,
I
if
would
barriers.
not
that
theoretically
are
if
the
from
typically
all
policy
from
markets
worse.
protection
troubles
of
though,
is
at
direction
the
trade
risk-averse
world
the
trade
in
policymakers
now
be
that
clear,
I find
reasons
will
not
constrain
as
an
anticipation
have
already
begun.
very
elegant,
miss
trying
of
Models
of
point
of
the
to accomplish.
being
first
pursued
am unsatisfied
stated
are
or
implied
above
off
because
I launch
by trade
with
in
and
their
into
a series
I believe
policy.
202
but
For
for
No doubt
for
NTBs are
constituents
a tariff,
be circumvented
reasons
literature.
In my view
somehow
what
the
the
some validity,
mark.
they
will
explain
has
the
work--that
imports,
Before
I must
I
discussed
they
by policymakers
be ineffective.
case,
a turn
most
while
in
to
industry
it
world,
protection
to remove
see
for
sought
been
the
the
protects
in the
changes
after
to
trade
optimal
am
THE PERCEPTIONTHAT TARIFFS WILL NOT WORK
simply
explicitly
the
I
NTBs that
each
tariffs
build
it
contrary,
move
as a reaction
uncertainty,
that
I
motivates
state
or
a
a tariff,
really
uncertain
have
of
all
words,
with
preferred
not
the
a
of uncertainty,
that
economy
used
the
remain
trade
As
of
instead
events
other
same time
On the
see pressures
In
trouble
advance
better
random
the
being
and would
turn
before
over
however,
what
The models
common property
is typically
sought.
changes
the
then
we observe.
theory,
capturing
protects
policies
in
policy.
curve,
a quota
behavior
valid
in place
the
that
As
such
at
the
to
trade
have
a quota
outcome
are
supply
of imports,
effectively
then seems to provide
favor
explaining
close
of
be put
import
quantity
This
considerations
for
very
my knowledge,
Thus
protection
to
they
the
uncertainty.
arguments
their
or
and the
the
theoretical
these
price
price
from
in which
best
put
country
that
a form
world
the
as a good
governments
possible
the
both
though
doubtful
the
in
stabilize
the
most
most
often
believe
because
by foreign
it
that
does
exporters
not
and
of reasons
why this
might
be
to
be the
objective
that
is
it
is
in the
only
context
of
that
objective
that
Trade
for
trade
free
we can understand
theorists
have
intervention,
trade.
including
producer
often
monopoly
many
revenues,
I
see
to
undo
being
to
domestic
motivation
trade
be the
also
seems
to
that
occur
outside
One could
process,
effective
in
the
be in
such
called
for
is geared
more
a prime
is
superiority
therefore
greater
prevention
or
aggressive
objective
of
between
tariffs
The choice
best
able
to achieve
I turn
in
terms
suffering
of
of
harm
a decline
their
stakes
that
than
what
to
to
firms
is,
of
despite
and
welfare,
workers,
and NTBs will
then
they
choice
are
policy
for
(1974)
has
losses
in utility
status
w.
public
policy
And trade
say about
same end.
I will
protectionism
rather
or
wages
be based
the
more
trade
one might
the
of
profits,
than
improvement.
achieving
objective
be
policy
much of
what
of
would
a social-welfare
the
me that
in terms
Corden
individual
fostering
for
the
of
that
in favor
to
tools
to
by
and it
policies
income
in the
use
function,"
attempt,
in
the
explicit
trade
agents
from
the
as
is
the
than
any
from
scratch.
on which
policy
more
is
objective.
to
their
capacity
losses,
administered
see
defensive,
clauses,
why
a bias
on that
escape
prevent
that
raising
therefore
income
of
modern
perceived
is
to
to
harm
harm
this
the
seems clear
policy
here
this
national
importance
it
of
Certainly
explained
embodying
other
from
undoing
None
is
desire
hard
welfare
preventing
of
assume
of
in
being
GATT.
better
social
example
that
I suspect
is
it,
as
harm,
the
protection
thus
to
distortions.
protectionism
of
an increase:
one models
policy
and/or
acquisition
actions
many of
is
Therefore
gains,
above,
consumer
trade,
trade
various
this
it
for
attributes
equal
for
discussion
further
framework
explain
though
purposes
that
to
However
the
behind
formal
a "conservative
function
than
motive
way.
defensive
motives
preference
of
domestic
what
and firms.
under
the
lobbying
prevent
actions
lobbying
same either
of
restrictive
or
workers
perhaps
political
the
of
be met.
various
avowed
in
terms
is
not
is about.
harm,
for
will
maximization
the
offsetting
it
their
motives
the
view,
that
in conceiving
belie
the
of
my
most
attempting
would
the
in
economies
done
of
improvement
and
Instead,
to
of
profits,
industrialized
seeming
met
objectives,
fear
creative
raising
welfare,
the
quite
We have
the
these
been
a list
to
of
reasons
prevent
bankruptcies,
why tariffs
domestic
workers
and unemployment.
203
may be distrusted,
and
firms
from
A.
GENERAL
SUSPICION
My first
reason
simple
distrust
see
in other
that
may
incentives
are
the
(rich)
will
be
on the
a domestic
foreigners
afford
to
throw
is
interfere
not
just
B.
larger
a tariff
all
will
as
they
continue
than
seems
right,
taxing
that
the
to protect
It
to.
is
of
so long
to
the
tax,
is
employment
say
as long
that
for
as they
can
that
assumed
that
they
undermining
leave
nothing
by making
it
there
Foreign
our
to
will
a bit
of
xenophobic
are
seen
as "out
let
a little
not
livelihoods.
'
chance.
harder,
is
firms
but
thing
A quota,
It
foils
by making
it
the
paranoia
to get
like
on the
invasion
that
us,"
a tariff
other
of
and
hand,
our
markets
impossible.
SUBSIDIES
I
that
turn
now to
may be more
believed
that
true,
it
I suspect
suspicion.
with
to
or
are
We
price
The possibility
tax,
work
effective
acceptable
the
objected
of
it.
policies
in favor
is
a
price.
this
therefore
appears
be
out
how
and society
same say,
with
understand
example,
to do it.
by
them
may
for
rather
price-oriented
pollution
right
In the
people
Furthermore,
it
to
public.
pay the
strengthens
the
to
of
understand
that
polluting
gains
industry
to
to
arguments,
for
but
and a failure
a failure
from
the
rationality,
a suspicion
as implying
pay
if
life
Economists'
ridiculed
POLICIES
do with
mechanism
from
be.
to
economic
discouraged
lost
nothing
price
of
just
only
easily
the
polluters
activity
in
of
can
pollution
has
areas
arise
OF PRICE-ORIENTED
is
it
is
plausible
were
increase,
would
first
soundly
that
case,
then
the
several
done
fear
will
if
that
to
subsidy
the
in
subsidizing
just
the
for
arises
are
in order
a tariff
and
reasons
The first
governments
being
the
of
based.
foreign
and if
that
the
increase
distrusting
industries
where
exports.
If
exports
be met with
tariff
would
is
whether
would
not
it
is
then
subsidy.
match
reduce
is
that
themselves,
a higher
increase
tariffs
If
the
imports
tariff
at
all
be well-founded.
The
likely
question
on
theory
idea
the
is
of
60f
part
not
why
competitive
effectiveness.
that
arises
the
subsidizing
well-equipped
export
trade
course
of
then
even
See
theory
a
to
subsidies
quota
Baldwin
implies
that
is
to
likely
sort
government.
answer
are
this
this,
used
in
an export
have
(1982).
204
unintended
behavior
Unfortunately,
since
the
of
we do not
first
subsidy
side
place.
can only
effects
that
is
trade
have
a good
Standard
be welfare
undermine
its
worsening
for
noncompetitive
explanation
the
subsidizing
trade
theory
that
Still,
we can rely
one can
sought
by
export
attain
it,
that
requires
the
being
sought
shown
under
argue,
it
to
a tariff,
to
the
to
expect
the
though
tariff
would
were
not
revenue
is
being
infinity
on
would
such
that
it
6
is
Let
latter
the
and
let
the
derive
will
fact
by an increase
in
the
of
under
raising
it
is
will
be
subsidy.
If
then
actually
a tariff's
be
increase
revenue,
would
my assumption
trade,
benefit
indeed
subsidized,
a tariff
subsidy
of
to
has
no such
this
raise
that
trade
the
policy
effectiveness
raising
problem.
exports
in this
in the
subsidy.
redundant
and cause
it
a source
of
loss
for
an
export
by
Eaton
A quota
beyond
an increase
(1985)
argument
for
assumptions,
as shown
be
the
+ p*(Q)
paid
Then
to
the
pushes
and
is
Grossman
certainly
a
If
so,
country,
ingenious.
(1986)
to
contrary,
be reduced.
importing
subsidy
and
it,
On the
benefit
can
dQ/dt
< 0,
a tariff,
supply
t,
and
be
demand
equilibrium
collected
on
functions
be
each
p*(Q)
unit
and
but
and
but
it
Dixit
relies
(1984).
be
the
cost
of
the
subsidy
itself
less
be
producer
unspecified
function
equated
to
derive
B(Q)
the
with
optimal
B’>O
Q.
and
It
B”c0.
is
Margindl
then
ds/dt
of
surplus,
i
1.
(3)
205
benefit
straightforward
that
0 i
quantity
respectively,
(2)
- j-zp’(q)dqi
be an
then
the
(1)
exports
Ips(Q)Q
of
pd(Q),
requires
- pd(Q).
subsidizing
cost
and
inverse
linear.
C = SO -
marginal
subsidy
amount. 8
of
purpose
But
hand,
subsidy
be
s,
let
being
of
the
can
general.
and
cost
in
subsidy
marginal
it
effects
increased
cost
Spencer’s
special
hardly
Q,
other
lead
the
and
of
s = t
Let
not
a subsidy,
exports,
the
the
actually
Brander
a list
for
the
to reduce
marginal
will
may make
7
full
are
trade-reducing
be collected.
on
the
therefore
its
the
to
reduced.
A quota,
this
levied
defensively
is
than
being
expected
of
the
then
optimal
to
a general
objective
are
use
If
the
undermined
the
optimal
that
us
they
exports,
exports
the
wholly,
could
used
situation
quota
that
be a problem:
that
by less
that
given
which
and benefits.
of
contributions
have
7
knowing
by
that
level
assumptions
but
being
true
costs
the
extent
not
recent
to
means
be
of
weak
Thus,
the
still
with
fairly
said
necessarily
or
weighing
in response
partly,
without
must
declines
while
be
on as an alternative.
subsidies
usual
reasonable
country,
cannot
and
to
under
my
assumption
about
the
objective
of
policy
it
would
not
be
may
be
considered.
C.
DUMPING
Another
thought
are
possible
of
dumped
two
below
explanations
versus
for
tends
concern
is
firms
earning
monopoly
analyze
it
selling
below
that
seems
be dismissed
dumping
of
Whatever
dumping,
now or
in
should
apply.
That
by the
dumping
firm,
market
by less
again,
not
carry
dumping
D,
than
Once
for
Low
of
and
Another
restricting
trade
familiar
gSee
Davies
future,
is,
a tariff
at
and
at
the
also
mind
with
the
the
for
that
the
firm
argument
of
the
driving
dumping,
and
one can
the
of
inducing
may expect
to
derive
firm
of
it
from
above
about
not
wholly,
absorbed
in
domestic
but
it
the
price
to
be partly,
price
even
a government
made
the
Here
objective
raising
The cost
to
be
public,
dumping.
reason
cost
would
anti-dumping
encompasses
of
later
subsidies.
the
It
of
predatory
of
theoretical
models.
that
the
raise
are
price
effects
these
or any other
will
will
There
charges
subsidies
the
tariff.
ineffectiveness
a quota,
which
of
should
a tariff
in this
be effective
in
situation
discouraging
any reason.
SUPPLY
ELASTICITIES
dumping
lead
to
governments
valid
arises
property
and
of
done
the
relative
foreign
however.
very
the
about
the
hopes
government
benefits
to
SHORT-RUN
Subsidies
distrust
the
this
the
the
these
is
same as
which
over
just
to
the
of
be in
in
firms.
domestic
forms. 9
explore
to
imports
interesting
however,
cost
market,
With
is
of
by economists:
below
the
rents.
cost
both
in each
dumping
below
tariffs
that
by foreign
at
to
possible,
out
Suppose
number
in
quotas
as analogous
do so.
does
practice
is
that
domestic
subsidies.
to
a
approach
to
of
market
time-consuming
anti-dumping
explanation
ineffectiveness
dumping--selling
exist
the
too
A simpler
it
domestic
there
but
though
the
the
analog
of
for
interesting
to
on
definitions
cost--and
duties
for
as a private-sector
being
least
argument
McGuiness
reason
without
of
(1982).
any
supply
Ethier
a distrust
and
firms.
for
being
of
That
distorting
curves
(1982).
206
tariffs
is
not
of
behavior
anywhere,
Brander
they
and
are
Krugman
of
a
essential,
suspicious
that
and
because
tariffs
typically
(1983).
for
from
the
less
elastic
in
the
short
and
the
adjustment,
run,
even
If
import,
and
if
tariff
not
would
at
In
this
to
zero
to
hold
to
response
hold
change
the
costs,
output
supply
the
extreme
a tariff
would
by the
Fixed
form
costs
in
may be perfectly
for
in
of
form,
are
the
of
short
elastic.
to
a country
of
a zero
of
firms,
an
short-run
be well-founded.
exporting
run,
it
Thus
this
reason
is
On the
other
especially
in
to
the
Any-size
and imports
would
even
if
idea
to
even
not
cannot
likely.
and
change
its
are
not
output
in
Furthermore,
sells.
production,
will
seem
production,
whom it
in
a tariff
does
as
a firm
change
that
result
for
a
a great
be completely
many
ineffective
for
likely.
hand,
the
a low elasticity
many products
in the
for
national
national
distribution
same thing
plausible,
particular
individual
the
presumably
not
not
the
For
can
is
however,
not
be so inelastic.
products.
which
effective
Any of
in
short
such
these
is
is
enough
imports
of
and
to
in
unlikely,
be made
a product
that
short
run
of
a tariff
than
in
with
establishment
assure
the
not
must
as design
marketing,
restricting
run
some investment
markets,
characteristics,
system.
be less
to
run.
difficult
be absorbed
extreme
elasticity
catering
were
suspicion
a country
short
it
long
all.
to
likely
the
supply
were
the
simply
drop
Exports
the
it
then
in
make
long-run
property
elasticity,
than
like
when the
this
run
in
a
will
the
long
run.
in
A quota,
we accept
that
preventing
harm,
start
to work
It
may
comparing
with
at
trade
all,
the
but
that
these
enough
effects
of
if
property
used
for
by definition.
the
to
defensive
a tariff
that
to
are
import
initial
a quota
is
easier
differences
that
if
a large
is
this
be preferable
and a tariff
surely
automatically
being
will
information,
then
replicate
have
If
purpose
in
that
it
of
will
quickly.
objected
a quota
not
is
quota
much more
be
does
policy
the
sufficient
true,
contrast,
constant
supply
has
then
desirable,
use
both
tariff
by
and
exist
can
only
over
any
over
a quota
which
not
subject
to
time.
has
the
am
elasticity
be calculated
declining
I
Indeed,
time.
positive
then
is
because
that
will
This
is
this
effect
same errors
of
a sense,
the
implementation.
E.
GROWTH
OF COMPETITION
Another
natural
mirror
domestic
image
industry
of
reason
the
comes
one
from
OVER
for
just
TIME
distrusting
discussed.
a foreign
207
tariffs
is,
Suppose
industry
that
in
that
is
the
expanding
threat
steadily
to
over
time.
Then
constant
tariff
imports
to
expand
have
to
with
a quota.
is
develop
compete
growing
to produce
competition
begun
process
the
continued
of
world
would
of
if
it
the
tariff
restrictions,
can
exactly
F.
In
Furthermore
two
prefer
observant
in
I
part,
the
a
am
developing
difference
to
grow,
result
with
seeming
a quota,
to
but
less
a tariff,
become
on the
more
a tariff,
by
more
other
hand,
liberal.
even
Thus
when both
be
infer
only
case
I wish
that
a tariff
that
the
the
the
supply
208
version
of
to
notice
it
level
of
a
have
of
cannot,
price
and
that
the
however,
and
effect
other.
the
that
price
it
led
us
a quota
there
of
a
each
protection
convenience
to consider,
observed
protection
import
true
true
a matter
tariff
remained
expected
the
final
underestimates
that
nonconstant
might
to
a constant
it
something
politically,
then,
a
was really
In the
while
effects,
public
it
accomplish
advantage,
considered,
and therefore
a quota.
Suppose,
this
to become
than
of
way.
imports
with
onerous
in
by means
interesting
time,
seeming
different
replicated
Thus
considerably
just
quite
a quota
can
over
have
populations
with
tariffs,
another
allow
steadily
latter
relative
dealt
production
To achieve
grow,
less
their
than
met
as the
in this
same result
to
have
labor-
effects.
cases
had
be
was providing.
been
to
show up as
COSTS
an
of
this
as
has
have
increase
appear
same real
could
effects
added
to
and
restricted
quotas
of
abilities
As a relatively
countries
textile
could.
be allowed
quota
policy
really
situation
this
have
the
constant
to
in
would
DECREASING
not
and
be made to
the
if
tariffs
potentially
would
that
world
phases
their
swings
countries
rather
knowledge
the
goods.
developing
threat
would
directly
of
in
and these
developed
This
more
different
swings
industry.
industrialization
To achieve
quota
quota
various
they
restrictive.
the
from
to grow
decided
than
these
textile
in
the
continue
is
and export
rate
countries
through
permit
tariff
be achieved
long-term
goods,
the
expand.
Incidentally,
rapidly
is
quantitative
because
move
to
and a
nonetheless
the
As the
particular
textiles
of
to
can
outward,
will
this,
that
they
leads
in
be drifting
run
To prevent
possibility.
internationally
example
will
short
a result
This
classic
curve
in the
run.
time,
rates,
increasing
system
long
different
industry,
sure,
the
advantage.
intensive
have
effective
an unlikely
capacities
The
supply
is
with
not
at
comparative
import
in
increase
This
to
the
that
is
the
the
qumta
provides.
curve
is
downward
sloping
over
the
relevant
scale
range.
in
the
the
exporting
for
the
costs
countries,
and if
good.
Or it
Suppose
entire
for
there
curve
is
given
level
as giving
as
expanding
the
the
if
there
such
of
internal
to
major
market
were
as
fixed
setting
up a
demise.
though
firms
as
decreasing
the
than
domestic
some
that
supply
curve
cause
this
curve
which
there
will
yields
two
positive
to
the
might
perhaps
abroad,
supply
is
curve,
curve
CID'.
so
is
Thus
and
points
the
import
The import
SMo,
of
for
in
can
are
with
supply
should
from
be
a family
bring
this
situation
it will
survive.
to
something
pass
through
it
down,
importing
but
there
will
also
an
prevent
that
by
they
will
do
then
at
there
EF in
like
SM'.
A tariff
at K is
below
this,
but
the
policy.
trade
a tariff
209
know
be one
all-or-nothing
somewhat
equilibria,
and
those
by imports.
imports
kink
importing
firms,
figure,
the
to the
firms
the
A tariff
industry
may be above
foreign
costs
will
reduce
In
rather
domestic
internal
the
is
value,
the
to
entirely
defined--but
imports
the
those
no trade,
served
are
of
figure,
not
quantity.
protect
levels
external
is
be no trade.
to
costs
low
the
is
each
failure
decreasing
they
trade
those
SKIT'.
as a locus
with
value,
upward,
to
curve
sloping
policy
the
protect.
curve,
price--which
threshold
to
demand
cost,
served
be a new one,
to
demand
given
shown
in
trade
The domestic
associated
If
market
NOW a tariff
1.
market,
each
costs
domestic
than
Figure
domestic
costs
may be an equilibrium
where
compared
industry
excess
assumptions,
its
imports
situation
risen
marginal
be if
supply
curves
each associated
with the level
of
for a given Q. It should
not be read as giving
cost
even
has constant
would
this
downward
for
sufficiently
If
in
industry
that arises
these
to
let
a competitive
marginal
then
shown
kinked
supply
domestic
supply
economies
but
were
again,
us in a situation
a domestic
and the
of
lead
lower
were
firms
market,
imports
recently
SS',
the
Under
have
by the
for
of upward-sloping
the externality
higher
once
industry
of
purposes,
is
drawn
interpreted,
which
there
to
country
case,
domestic
cost
exists
line,
is
the
costs
situation
horizontal
demand
so.
if
importing
a country's
To put
defensive
initially
The
of
external
be the
the
market.
domestic
firms,
that
than
domestic
because
will
case
ones
the
entering
further
higher
be used
the
might
with
be the
system.
a level
that
might
especially
associated
distribution
at
This
industry,
entirely.
but
not
shifts
just
the
large
threshold
such
only
Set
as the
stable
Set
permit
the
any
import
enough
to
value
above
one
shown,
one under
P
\”
\
FIGURE 1
210
plausible
assumptions
is
E r . 10
at
At
that
point
there
is
no domestic
production.
A quota,
permit
on the
a substantial
for
the
low
Qq.
just
At
equal
to
of
be replicated
story
is
competition
and that
it
in
perhaps
basic
point
is
prevent
do
terms
more
full
this
attractive
keep
that
of
shutting
as a defensive
policy
that
of
keep
trade
price
shown
of
of
tariff
a
that
cannot
to the
notion
of moderate
size,
substance
if
but
decreasing
off
is
the
the appearance
figure,
the
it
is
good.
simple,
some form
can
This
an outcome
gives
least
do not
a quota
is
keep
and to
equilibrium.
it
at
it
in
exploitation
without
but
therefore
to
This
in an unstable
believably,
simply
Tq.
can
giving
In the
protection.
a tariff,
will
quota
goods,
stylized,
undercut
some imports
to continue.
the
distance
except
a tariff
competitive
told,
of
to permit
supply
time,
domestic
the
somewhat
can
such
of
is
by a tariff
This
that
quota
domestic
same
rate
the
can be set
of
the
that
tariff-equivalent
equivalent
hand,
portion
quota,
imports
to
other
I have
a similar
to
story
could
noncompetitive
market
costs,
and that
be
The
low
enough
a tariff
This
greatly
frame
market.
penetration
entirely.
need not
tried
cannot
makes
restrict
the
quota
trade.
III m CONCLUSION
I have
to
use
came
quotas
from
On the
or
whole,
these,
I did
happens
as
two
sets
of
quantitative
literature
on
explanations
implications
that
there
find
them
reasons
are
why governments
restrictions
direct
while
not
the
The first
nonequivalence
have
be derived
undoubtedly
convincing
on trade.
that
can
may prefer
tariffs
and
appeared
in
from
that
literature.
of
truth
elements
and complete
of
set
in
as explanations
that
many
of
of
what
in the world.
I then
looked
perception
tariffs
are
10 I
be
not
harm
in
the
part
to
situation,
of
explanations,
governments
as quotas
domestic
a Marshallian
this
set
of
as effective
am assuming
used
at a second
on
preventing
cannot
at
the
as
either
literature,
in
here
and other
primarily
quotas,
the
looked
firms
dynamic
since
the
and
all
in restricting
process.
quantity
supplied
I found
defined.
211
A Walrasian
for
them related
constituents
trade,
and workers.
adjustment
of
their
a given
or,
therefore,
five
distinct
adjustment
price
to
that
is
process
not
well-
situations
in which
To me this
seriously
as
dismissed
this
perception
means,
first,
a reflection
as
the
would
that
of
result
a
of
be valid.
the
preference
variety
for
of
NTBs should
valid
fuzzy-headed
concerns
thinking
be taken
rather
on
the
than
part
of
governments.
Second,
it
means
of
government
policymakers.
that
are
the
that
make sense
inexplicable
should
be changed.
should
suggest,
In
As the
rigorously,
function
disruption.
that
I think
might
relevance
would
the
is
less
than
quota
of
producers
in
countries
whose
then
and
of
the
such
should
not
governments
are
An
provides
restricted
requirement
in
be
of
levels
the
the
has
code
obvious
it.
by means
allocated
quotas.
a domestic
industry
deserves
imports,
the
GATT should
quota,
prior
import
all
not
to
licenses
set
the
in
exporting
at
a
injury.
the
amount
countries
subject
to
to
to
GATT
for
the
the
ignore
safeguards
of
foreigners--even
but
it
directly
current
this
in
the
country
action.
safeguard
or
212
of
of
is
that
countries
but
the
GATT
it
in
reasons
for
NTDs
rules--that
automatically
whose
has
it
and
by certain
governments
rules.
that
those
be hurt
such
Compensation
clause,
is
consumers
acknowledges
drawback
policy
of
who would
preference
or circumvent
of
the
both
and
Thus
paper
(1986),
welfare,
increased
as a tariff.
this
of
country,
advantage
compensation
situations
be implemented
imports
issuing
market
externally
an import
of
more
safeguards
by describing
from
to
any
as I ,show in Deardorff
the
have
tempted
additional
by
policy,
importing
discussed
paper
with
in such
into
institute
them
the
exports.
this
exports
that
injury
by
models
social-
dealing
use
should
level
allocating
preserving
policies
I have
to
of
ways
ideas
recommendation
conclude
actions
due
of
conservative
formally
policy
decided
our
these
for
for
marketable,
base-year
base-year
of
build
that
be implemented
and
their
capable
other
some
Corden's
a policy
country
pursued
policy
I will
been
importing
should
quota
An advantage
is
to
in
mean that
half
to
that
perform
second
have
what
safeguards
has
I
paper
be designed
including
to do this.
appropriate
that
world,
in the
difficult
(1986),
globally
protection
the
amounts
that
trade
of
that
the
all
here,
it
some form
of
presented
Since
once
prescribe
This
ideas
be at
be desirable
temporary,
Specifically,
no
may well
that
formalize
discussion
My proposal
explicitly
level
models,
in
in the
should
consistently
be negotiated.
to
policy
governments
as the
I recommend
that
of
to
implies
trade
When
Deardorff
attempting
welfare
of
we observe
our
need not
paper,
models
that
within
it
another
our
behavior
exports
always
compensation
are
been
has
a
been
difficult
to
trade
achieve
in
concessions.
not,
in any
lose
from
action
feature
actually
come
would
only
country
this
allocation
private
offsetting
value,
and they
individuals
that
to
the
while
be allocated
and so would
of
The
through
questionable
is
would
countries
specific.
of
the
proposal
quota
the
was attempted
did
who stood
to
rights
to
place.
marketable
from
be the
always
first
of
be globally
it
compensate
in the
a safeguards
since
were
to
under
would
be
serve
A crucial
import
they
These
case,
the
practice
which
quotas
not
they
quotas,
these
to
specific
require
were
and the
themselves
countries,
that
the
imports
Thus
allocated.
quota
would
rents,
be
that
global
it
would
globally
marketable.
This
feature
imports
thus
from
encourage
economy
it
the
sources
would
be subject
As
entry
of
This
enforcement
and in their
loses
I
this
from
advance
would
the
Michael
of
the
until
the
quotas
is
policy
like
stimulate
we will
termination
I
would
require
governments
the
became
lose
to prefer
quotas
an
be
countries
and
sometimes
both
objection,
should
in
of
rents
that
their
these
erode
over
quotas
to
time
in
one
otherwise
be
be
specified
in
per year.
domestic
in
forcefully
To discourage
percentage
provided
explicitly
foreigners
could
protection.
by some preset
would
to
that
the
be
raised
allocating
protection
much more
be
accepted
My hope
sight
monitor
an MFN
quotas
This
interests
a predictable
and
fashion
redundant.
undoubtedly
can
to
waste,
constituencies
the
discussion.
not
political
abroad
this
mean that
to
these
engender,
these
by
for
both
provided
also
that
officers
world
countries
be equivalent
inefficiency,
to
that
in quantity
that
There
response
main
as increasing
rents
the
that
Mussa,
happening
assure
customs
requirements
said
in
press
would
would
requirement
and
a changing
exporting
It
that
evasion.
is
by
on to
reduce
have
This
one
for
assuring
premium,
In
across
suppliers.
the
country-of-origin
Finally,
temporary.
source.
on prices,
need
of
a single-quota
patterns
effect
would
that
to
advantage,
the
corruption
counted
its
advantage
least-cost
by new low-cost
eliminate
origin.
the
economic
production
a practical
would
discussion
from
freeze
in terms
tariff.
global
the
not
permit
quota,
have
imports
would
and would
of
all
would
of
the
that
as
is,
needs
NTBs.
213
be considered
desirable.
however,
reasons
to
I have
I
that
in
put
it
forth
discussing
mentioned
before
in this
a
now to
this
paper
issue
for
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