Tariffs vs Quotas in a Model of Trade with Capital Accumulation*
Year: 2006
Type: article
Abstract: This paper examines the equivalence among price‐modifying and quantity‐fixing international trade policies in a differential game. We employ two well‐known capital accumulation dynamics for firms, due to Nerlove and Arrow and to Ramsey, respectively. We show that, in both cases, open‐loop and closed‐loop Nash equilibria coincide. Under the former accumulation the tariff‐quota equivalence holds, while, in general, it does not under the latter. Moreover, in the Ramsey model, the country setting the trade policy (weakly) prefers a quantity‐equivalent import quota to the adoption of the tariff. These results are not a consequence of the equilibrium concept we adopt (with and without market power), but directly follow from the interplay between market power and the properties of accumulation dynamics.
Authors: Giacomo Calzolari, Luca Lambertini
Institution: University of Bologna
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2137440950