Threats and Promises in Tariff Setting
AbstractThe paper analyzes tariff-settings by two large countries, in an alternating move, infinitely repeated game. We find that there always exists a ``non-cooperative'' Markov perfect equilibrium in which countries continue to select their individual Nash tariffs. If countries are patient, however, there are also multiple ``cooperative'' Markov perfect equilibria in which countries mix their actions on their tariff space so that the resulting stochastic path indicates gradual tariff reduction with occasional retreats. In such an equilibrium, a country unilaterally lowers its tariff rate, which may be reciprocated by the other country in the future
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 635.
Date of creation: 11 Aug 2004
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Tariff setting game; alternating move;
Find related papers by JEL classification:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
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- Naqvi, Nadeem, 2010.
"A theory of dynamic tariff and quota retaliation,"
27656, University Library of Munich, Germany.
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