Optimal Import Quotas in Oligopolistic Markets

Exact date of working paper unknown.Typically the literature on trade policy in the presence of imperfect competition has derived optimal tariff and subsidy policies that maximize economic welfare. However, given that nontariff policies are more common forms of protection, this paper focusses on the derivation of optimal import quotas. Specifically, the impact of incomplete capture of quota rents by the home government is evaluated. The results indicate that as foreign firms are able to capture more rents, the optimal import quota should be made more restrictive. In the limit, where the home government captures no rents, a virtually prohibitive quota is optimal