A Trade Policy Perspective On Import Quotas And The Substitution Effect

Godfrey Cadogan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper focuses on the necessary conditions required in order to exploit the substitution effect which arises when there is a shift in demand induced by import quotas under imperfect competition. The protective policy succeeds if the substitution effect shifts in favor of goods produced by the domestic industry and this shift offsets foreign firms quota rents and the decrease in consumer welfare. While extant literature tends to focus on welfare loss associated with import quotas, in this paper social welfare analytics are produced and a trade policy decision rule for net welfare gain is obtained.

Keywords: Import quota; social welfare; substitution effect; trade policy decision rule. (search for similar items in EconPapers)
JEL-codes: F10 F12 F13 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-int
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