Footnote:
In: Journal of Economic Dynamics and Control, Vol. 31, 2007
Description:
This paper examines the impact of voluntary export restraints (VERs) in an international duopoly modelled as a differential game. With a Ramsey capital accumulation dynamics, the game admits multiple steady states, and a VER cannot be 'voluntarily' employed by the foreign firm in case of Cournot behaviour in demand substitutes. Hence, the dynamic framework confirms the results of the VERs literature with static interaction in output levels. In the case of price behaviour, the adoption of an export restraint may increase the profits of both firms if products are substitutes and the steady state is market-driven. However, contrary to the acquired wisdom based upon the static approach, the dynamic analysis also admits an equilibrium outcome, identified by the Ramsey golden rule, where the incentive to adopt a VER is ruled out, irrespective of whether firms are quantity- or price-setters