Administrative Delays as Barriers to Trade

Economics

Further details

(with K. Rockett)

We study a two-country model where two firms, one domestic and one foreign, must decide when to introduce their new products. The home government may apply an import tariff, an administrative delay or both to the product of the foreign firm. An administrative delay imposes a waiting period between the time when the quality of the product is determined and the time when the product can actually be sold. Our main interest is in the differential effect of the tariff and the adminstrative delay on the timing of new product introductions and the resulting changes in home, foreign and world welfare. We show that administrative delays are less efficient instruments than tariffs for maximizing home welfare. With a tariff the home government can affect the timing of entry to ensure that the domestic firm moves first at the socially optimal date. Although an optimally chosen delay can achieve the same pattern of introduction, it does not yield any tariff revenues. As a result if the tariff may be set optimally, administrative delays are not used in a discriminatory manner. if trade liberalization constrains the tariff to be below its domestically optimal level, discriminatory administrative delays may become part of the optimal policy of the home country. As the optimal delay leads to lower levels of world welfare than the optimal tariff, trade liberalization can decrease world welfare.