What Do Voluntary Export Restraints Do?

Kala Krishna

NBER Working Paper No. 2612 (Also Reprint No. r1312)
Issued in June 1988
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

This paper has two aims. First, to examine alternative ways of modeling VERS in imperfectly competitive markets. This is important, since the. effects of VERS are sensitive to the models used. Second, to argue that the effects of VERS also depend on whether goods are complements or Substitutes. This point is illustrated by extending the model of Krishna (1983) to allow complementary goods to be produced by domestic and foreign firms. If goods are substitutes, VERs et at free trade levels raise all profits, while if they are complements, the VERS have no effect. Thus tariffs and quotas are fundamentally non-equivalent under Bertrand duopoly when substitute goods are produced, but are equivalent when complementary goods are being produced. This is contrasted to the case of Stackelberg leadership. Th. importance of specifying the effects of any restriction on the payoff functions of agents and using this to analyze its affects on equilibrium of the game is emphasized.

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Document Object Identifier (DOI): 10.3386/w2612

Published: "What do VERs do?" From Beyond Trade Friction, edited by Ryuzo Sato and Julianne Nelson, pp. 75-92. New York: Cambridge University Press, 1989.

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