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A Note on the Endogenous Timing of Tariff Policy in the Presence of a Time Lag between Production and Trade Decisions

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  • Tsuyoshi Toshimitsu

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Abstract

Using the Hamilton–Slutsky extended endogenous timing game of observable delay framework, we analyze the endogenous timing of tariff policy in the presence of a time lag between production and trade decisions. In particular, focusing on the strategic relationships between an importing country’s government and an exporting monopoly firm, we show that a natural Stackelberg situation exists in which the importing country’s government as first mover determines the tariff rate and the exporting monopoly firm as second mover determines the production level. We also find that the natural Stackelberg equilibrium is Pareto superior to both the Nash and alternative Stackelberg equilibria. This implies that commitment to an ex ante optimal tariff policy before the production decision is made is optimal for the affected parties. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Tsuyoshi Toshimitsu, 2013. "A Note on the Endogenous Timing of Tariff Policy in the Presence of a Time Lag between Production and Trade Decisions," Open Economies Review, Springer, vol. 24(2), pages 361-369, April.
  • Handle: RePEc:kap:openec:v:24:y:2013:i:2:p:361-369
    DOI: 10.1007/s11079-012-9242-8
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    Keywords

    Endogenous timing game; Nash equilibrium; Stackelberg equilibrium; Tariff policy; Monopoly; F12; F13;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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