The Quality of Export Products and Optimal Trade Policy

Shabtai Donnenfeld and Wolfgang Mayer

International Economic Review, 1987, vol. 28, issue 1, 159-74

Abstract: This paper demonstrates that voluntary export restraints may be socially desirable to upgrade the quality of export products. When informational externalities in the recognition of quality result in suboptimal production of quality by competitive firms and the enforcement of socially desirable quality is very costly, optimal trade policy calls for export restrictions. These restrictions apply to both size and number of firms in the export industry. Export licenses combined with a specific production tax cum subsidy represent a suitable pair of instruments. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1987
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