Politics of Free Trade Areas: Tariffs versus Quotas
(JIE 58(2), December 2002, 413-427) (with Rupa Duttagupta) In this paper we compare and contrast the political viability of bilateral Free Trade Area (FTA) Agreements in the presence of tariffs and quotas. Assuming that the government maximizes a weighted sum of welfare and producer profits, we show that whereas an FTA is unambiguously rejected by one of the countries under a tariff it may be endorsed by both trading partners under a voluntary export quota or import quota that provides the same level of protection as the tariff.