Signalling and underutilization of import quota

Karel Janda

Journal of International Trade & Economic Development, 2002, vol. 11, issue 4, pages 351-365

Abstract: This study introduces an information asymmetry regarding the foreign exporter's cost in a strategic trade model. We show that it is possible to use import quotas or voluntary export restraints as a signal of the strength of the foreign exporter who enters into a previously protected domestic market. Our model provides a possible explanation for the underutilization of import quotas that is consistent with rational behaviour on the part of importing and exporting countries. Under the assumption that the exporter's marginal cost of securing the import quota is sufficiently low the underutilization of an import quota is an equilibrium result.

Keywords: Import Quota; Voluntary Export Restraint; Signalling; Oligopoly (search for similar items in EconPapers)
Date: 2002
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