Free trade equilibria to multi-country quota games

Dan Bernhardt, Alice Enders

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We consider a symmetric N-country competitive general equilibrium endowment economy in which countries select quotas in a stsic Nash game to maximize the welfare of representative citizens. Unlike tariffs, quota revenues need not accrue solely to the quota-setting country. The only possible equilibrium outcome, other than autarky, is free trade. Free trade prevails unless the quota-setting country receives a fraction of quota rents greater than (N-1) N. We conclude that the prevelance of binding quotas, in contrast to tariffs, cannot be explained within the accepted rubric in which countries maximize the welfare of representative citizens.

Original languageEnglish (US)
Pages (from-to)319-333
Number of pages15
JournalJournal of International Economics
Issue number3-4
StatePublished - Nov 1989
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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