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Policy Synchronization and Staggering in a Dynamic Model of Strategic Trade

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  • Praveen Kujal

    (Universidad Carlos III de Madrid)

  • Juan Ruiz

    (Universidad Carlos III de Madrid)

Abstract

This paper studies steady-state, Markov-Perfect strategic trade policy when (infinitely lived) governments are committed to trade policy during two periods. We compare the case in which both governments choose their export subsidies in the same periods (synchronization) versus the case in which they set them in alternate periods (staggering). We find that, under Cournot competition, welfare is higher when both governments synchronize their choice of export-promoting policy, since export subsidies are lower (closer to the cooperative solution) than when governments set them sequentially. Retaliation is therefore stronger and more harmful when governments alternate as (temporary) Stackelberg leaders. Synchronization is the equilibrium of the pre-commitment game in which both governments choose when to set their export subsidies. These results are robust to having stochastic length of commitment period and to allowing predetermined but flexible choice of subsidies by both governments. We also analyze the results of policy-staggering under alternative modes of competition and the possibility of firms investing in R&D.

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File URL: http://128.118.178.162/eps/it/papers/0302/0302003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0302003.

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Length: 36 pages
Date of creation: 04 Feb 2003
Date of revision:
Handle: RePEc:wpa:wuwpit:0302003

Note: Type of Document - pdf file; prepared on Scientific Workplace; to print on any printer; pages: 36 ; figures: included in text
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Web page: http://128.118.178.162

Related research

Keywords: Strategic Trade Policy; Retaliation; Markov Perfect Equilibria; Policy-Synchronization.;

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References

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