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Retaliatory disagreement point with asymmetric countries. Evidence from European wine sector during enlargement

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  • PERJU, Genoveva Elena

Abstract

The vector space model facilitates a very useful representation of the strategic interaction in trade because it is possible to incorporate both symmetric and asymmetric features of the players. This paper characterizes the Nash solution of the non-cooperative international trade game in the orthogonal vector space. We have used the standard properties of the Nash solution to determine if the non-cooperative action-reaction trade policy space should be written in terms of 'import-import' or 'import-export' quotas as strongest punishment. The trade policy space defined by import-export' quotas is not a Nash solution of the non-cooperative game but an improvement in the disagreement set. We show the positive correlation between import and export quotas using data on trade relations between EU-15, Romania, Hungary and Bulgaria for wine sector during 1995-2005. In our model the outcome of the non-cooperative trade is autarky. Retaliation is played when countries restrict their imports to one third of the national optimum.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17757.

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Date of creation: 15 Jun 2009
Date of revision: 03 Oct 2009
Handle: RePEc:pra:mprapa:17757

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Keywords: asymmetries; quotas; non-cooperative game; disagreement points; Nash solution;

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  1. Nakanishi, Noritsugu, 1999. "Reexamination of the International Export Quota Game through the Theory of Social Situations," Games and Economic Behavior, Elsevier, vol. 27(1), pages 132-152, April.
  2. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
  3. Tower, Edward, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 623-30, October.
  4. Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 1998. "Harmonizing External Quotas in a FTA: A Step Backward?," CEPR Discussion Papers 2002, C.E.P.R. Discussion Papers.
  5. Constantinos Syropoulos & Elias Dinopoulos & Mordechai E. Kreinin, 1995. "Bilateral Quota Wars," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 939-44, November.
  6. Harvey Lapan & Jean-Philippe Gervais, 2004. "The Nonequivalence of Import and Export Quotas in Strategic Equilibrium," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 130-137, 02.
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