Journal of International Economics

This paper investigates the equivalence of optimal import tariffs and quotas in a Cournot duopoly model when firms have more information about demand than the domestic government. The author considers a screening model in which the government offers the domestic firm different contracts from which to choose. She shows that the availability and cost of obtaining correct information from the firm depends upon the choice of trade policy instrument. Asymmetric information thus destroys the equivalence of tariffs and quotas, which prevails under complete information, and has a profound impact on how government, firms, and consumers rank different trade policy instruments.