The Welfare Effects of Voluntary Export Restraints

Abstract

This paper examines a duopoly model of trade consisting of a home and a foreign firm with conjectural variation approach. It analyzes the effects of voluntary export restraints (VERs) imposed on the foreign firm on the profits of both firms and on the home country's welfare, when these VERs are lower than the lowest level of imports among free-trade equilibria under conjectural variations. It is found that such VERs increase the home firm's profits, reduce the foreign firm's profits, and may increase the home country's welfare under some circumstances.