Quota Use under VERs: A theoretical framework and some evidence on MFA quota use

Shumei Gao and Jihe Song

No E03, Working Papers from Department of Economics, School of Management and Languages, Heriot Watt University

Abstract: In this paper, we propose a framework to study quota use under Voluntary Export Restraints (VERs). Our model unifies three strands of literature in finance and international trade policy research: the equivalence between tariff and quotas/VERs, option pricing, and option exercise. We also present evidence on quota utilisation rates for clothing exports under the Multi-Fibre Arrangement (MFA) from the most important Asian suppliers to the EU.

Keywords: VERs; quota use; option-pricing; first passage time (search for similar items in EconPapers)
JEL-codes: F13 G12 (search for similar items in EconPapers)
Date: 2004
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