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A Theory of Managed Trade

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Author Info
Kyle Bagwell
Robert W. Staiger

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Abstract

This paper proposes a theory that predicts low levels of protection during periods of "normal" trade volume coupled with episodes of "special" protection when trade volumes surge. This dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game setting facing volatile trade swings. High trade volume leads to a greater incentive to unilaterally defect from cooperative tariff levels. Therefore as the volume of trade expands, the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2756.

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Date of creation: Nov 1988
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Publication status: published as American Economic Review, September 1990.
Handle: RePEc:nbr:nberwo:2756

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  1. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March. [Downloadable!] (restricted)
  2. John Haltiwanger & Joseph E. Harrington Jr., 1991. "The Impact of Cyclical Demand Movements on Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 89-106, Spring. [Downloadable!] (restricted)
  3. Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers 8759, University of California at Berkeley.
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  4. Robert C. Feenstra & Tracy R. Lewis, 1987. "Negotiated Trade Restrictions with Private Political Pressure," NBER Working Papers 2374, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, vol. 30(3-4), pages 267-283, May. [Downloadable!] (restricted)
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  6. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June. [Downloadable!] (restricted)
  7. Kennan, John & Riezman, Raymond, 1988. "Do Big Countries Win Tariff Wars?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 81-85, February. [Downloadable!] (restricted)
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