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....

This paper investigates the policy active importers' incentives and welfare implications of using production and trade polices in a dynamic framework where production decisions occur before consumption decisions. We show that the equilibrium for production taxes and quotas are not equivalent,...