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Trade policy with endogenous entry revisited

Kala Krishna () and Ling Hui Tan ()

Journal of International Economics, 2010, vol. 80, issue 2, 271-279

Abstract: This paper revisits the effects of tariffs and quotas in a competitive setting where three results are thought to hold. These are: that quotas are equivalent to specific tariffs, the form of tariffs--specific or ad valorem--does not matter, and that the way in which a quota is allocated has no real effects as it only affects the allocation of rents, not their size. We show that all three of these results are false when entry/exit is endogenous. Equivalence holds only if the initial level of entry is set at the long-run level under the quota.

Date: 2010
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Handle: RePEc:eee:inecon:v:80:y:2010:i:2:p:271-279