The Nonequivalence of Import and Export Quotas in Strategic Equilibrium

The authors use a standard general-equilibrium trade model to show that export and import policies are not symmetric in the equilibrium of a strategic game with quotas. It is assumed that <i>N</i> (identical) large countries, without cooperation, set their import (or export) quotas to maximize domestic welfare. It is shown that the equilibrium in which all countries use import quotas differs from, and is superior to, the equilibrium in which countries use export quotas. The difference arises because the elasticity of the residual foreign export supply schedule differs between the two equilibria. The authors also study the properties of the sequential equilibrium of the game. In a simultaneous-move game, each country is indifferent as to whether it uses an import or export quota, given the policy of the other country. However, in a sequential-move game, the first mover will prefer to use an import quota rather than an export quota. Copyright Blackwell Publishing Ltd 2004.