Our analysis is motivated by cases of cigarette smuggling in Canada and in the UK. In the 1990s, domestic cigarettes were legally exported to be subsequently illegally imported. At first, smuggling was done by individual consumers who bought cigarettes abroad and brought them back through...

The authors extend Professor Bhagwati's analysis about the nonequivalence between trade policy instruments when domestic production is monopolized and the terms of trade are endogenous, by allowing for smuggling. They show that the dominance of the ad valorem tariff over the quota is not robust....

The paper investigates the incentives to commit price or retain price flexibility in a model in which exporting firms face different degrees of exchange rate uncertainty. The result shows that introducing exchange rate uncertainty can lead to the endogenous emergence of a unique leader-follower...