A WELFARE COMPARISON BETWEEN VERS AND TARIFFS UNDER THE GATT

Economic theory suggests that tariffs are welfare-superior to voluntar y export restraints (VERS) in the presence of perfect competition. How ever, with imperfectly competitive markets, some authors have found th at VERS may be welfare superior to tariffs. We reconsider the comparis on between a VER and a tariff in the context Of GATT-based constraints . Using a model of perfect competition, we show that a VER can welfare -dominate a tariff increase that is accompanied by a compensatory redu ction in the tariff on another good or if the tariff is matched with a retaliatory tariff on domestic exports.