Tariffs, quotas and welfare in a monetary economy

The effects of tariffs and quotas on welfare in a monetary economy are considered. It is shown that while both policies improve the balance of payments they have different lifetime welfare implications even when they are equivalent in the long run. The speed of adjustment is shown to be more rapid under a tariff than under a quota. Therefore, adjustment costs associated with changes in money holdings are lower under a tariff while those associated with changes in consumption are higher. Simulation results are used to examined the implications of various structural parameters for lifetime utility under the two policies. © 1985.

Duke Scholars

Author Kent P. Kimbrough Economics