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Perfect Equilibria in a Trade Liberalization Game

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  • Matsuyama, Kiminori

Abstract

The credibility of temporary protection is examined in a simple infinite horizon, perfect information game of timing in which the domestic government uses the threat of future liberalization to induce the domestic firm to invest. All pure strategy subgame-perfect equilibria are cyclical and, surprisingly, one of them implements optimal temporary protection. However, this equilibrium fails to pass another credibility criterion called "renegotiation-proof." The game has a unique stationary subgame-perfect equilibrium in mixed strategies. Copyright 1990 by American Economic Association.

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  • Matsuyama, Kiminori, 1990. "Perfect Equilibria in a Trade Liberalization Game," American Economic Review, American Economic Association, vol. 80(3), pages 480-492, June.
  • Handle: RePEc:aea:aecrev:v:80:y:1990:i:3:p:480-92
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