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Feenstra, Advanced International Trade Chapter 8: Import Quotas and Export Subsidies In addition to import tariffs, quotas and subsidies are widely used forms of trade policy. Quotas and subsidies can in pr iple be applied to either imports or exports, but we will focus here on import quotas and export subsidies. How do these policy instruments differ from tariffs, and does this depend on the type of pe ion in the market? These are the questions we shall investigate in this chapter. We begin with the result of Bhagwati (1965) on the “equivalence” of tariffs and quotas. This means that under perfect pe ion, applying a quota that limits the number of units imported will have essentially the same effects as applying a certain level of tariff: for each quota, there is an “equivalent” tariff. This equivalence result no longer holds under imperfect pe ion, however. Bhagwati (1965) considered a monopolistic home importer subject to a quota, and that analysis was later extended to duopoly with a home firm and foreign firm subject to an import quota (Harris, 1985, Krishna, 1989). As we shall see, a quota and tariff that have parable effects on the level of imports can then have quite different effects on the import price, and therefore on welfare in the importing country. Another reason for tariffs and quotas to differ occurs when foreign firms can choose the quality of the good that they export. In that case, a limitation on the number of units exported (as under a quota) will have quite a different impact from a tariff on the value of exports (as with an ad valorem tariff). The importance of this case became apparent with the quota applied to Japanese auto exports to the United States during the 1980s. The evidence strongly supports the hypo