A Welfare Comparison between VERS and Tariffs under the GATT

Michael Moore and Steven Suranovic

Canadian Journal of Economics, 1993, vol. 26, issue 2, 447-56

Abstract: Economic theory suggests that tariffs are welfare-superior to voluntary export restraints in the presence of perfect competition. However, with perfectly competitive markets, some authors have found that voluntary export restraints may be welfare superior to tariffs. The authors reconsider the comparison between a voluntary export restraint and a tariff in the context of GATT-based constraints. Using a model of perfect competition, the authors show that a voluntary export restraint can welfare-dominate a tariff increase that is accompanied by a compensatory reduction in the tariff on another good or if the tariff is matched with a retaliatory tariff on domestic exports.

Date: 1993
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