Minimum quality levels and import tariffs

Roberto Hernan Gonzalez
Authors registered in the RePEc Author Service: Praveen Kujal

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: In a vertically differentiated duopoly the use of import tariffs by an importing country decreases domestic welfare if import tariffs are chosen once the firms have made their quality decisions. In this paper we propose import tariffs that are contingent on some minimum quality level (MQL) being met. A firm is taxed if it fails to meet these MQL. Import tariffs conditional on fulfilling the MQL are welfare improving over free trade. Investment in quality increases, market coverage goes up and consumer surplus increases. Firm profits decrease relative to free trade under such tariffs.

Date: 2003-10
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we034817

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