On Functionally Distributed Quotas

We consider "functionally distributed" quotas, where trade is restricted to a function of another economic activity, paying special attention to the ratio constraint and its relation to "proportionally distributed" quotas. We propose a simple principle defining the optimal policy under a functionally defined restriction, extend the analysis of ratio import/production constraints to general equilibrium, introduce export constraints, and constraints defined in proportion to factor use. We develop the general-equilibrium geometry of functional trade constraints and the concomitant optimal policies, deriving a "quota locus" that depicts the consumption possibilities under various regimes. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.