Appropriation, Deterrence, and Trade Policy in a Simple Exchange Economy
AbstractWhen appropriation possibilities are overlooked, the predictions of standard trade models can be misleading. Trade theorists need a new class of models designed to investigate the effects of appropriation possibilities on exchange. Toward this end we incorporate appropriation possibilities into the simplest model of trade: the Edgeworth box model o f pure exchange. The model predicts that exchange will occur between a Defender and an Attacker, but the terms and volume of trade will be considerably different from the standard Edgeworth box. We also discover that when the power of attack is low, a tariff designed to punish Attacker's appropriation causes welfare of both countries to increase and the volume of trade to expand. When the power of attack is high, however, a tariff penalty against appropriation causes the piracy rate to increase and the security of property to fall due to the terms-of-trade effect of the tariff. The model has applications to classical piracy, present-day software piracy, and other markets where exchange, defense, and appropriation are intertwined.
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Bibliographic InfoPaper provided by College of the Holy Cross, Department of Economics in its series Working Papers with number 9801.
Length: 39 pages
Date of creation: Jan 1998
Date of revision:
Publication status: Published in Economics Letters, Vol 63:1, 1999, pp. 77-83.
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Fax: (508) 793-3708
Web page: http://www.holycross.edu/departments/economics/website/
More information through EDIRC
appropriation; property rights; trade; tariff; piracy; deterrence; Edgeworth box;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
- F10 - International Economics - - Trade - - - General
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