Sensitivity of Tariffs and Quotas: A Signaling Game

  title={Sensitivity of Tariffs and Quotas: A Signaling Game},
  author={Mohammad Amin},
In a model with cost-based informational asymmetry and trade policy determined endogenously, we show that tariffs and import-quotas have different sensitivities to the signal sent by the private agents to the home government. Specifically, the optimal quota is shown to be more sensitive than the optimal tariff as measured in terms of the reduction in equilibrium import-volume caused by the change in the government's perception about the true cost of the domestic firm. Consequently, signaling… CONTINUE READING