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Threats and Promises in Tariff Setting

Author

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  • Taiji Furusawa

Abstract

The paper analyzes tariff-settings by two large countries, in an alternating move, infinitely repeated game. We find that there always exists a ``non-cooperative'' Markov perfect equilibrium in which countries continue to select their individual Nash tariffs. If countries are patient, however, there are also multiple ``cooperative'' Markov perfect equilibria in which countries mix their actions on their tariff space so that the resulting stochastic path indicates gradual tariff reduction with occasional retreats. In such an equilibrium, a country unilaterally lowers its tariff rate, which may be reciprocated by the other country in the future

Suggested Citation

  • Taiji Furusawa, 2004. "Threats and Promises in Tariff Setting," Econometric Society 2004 Far Eastern Meetings 635, Econometric Society.
  • Handle: RePEc:ecm:feam04:635
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    Cited by:

    1. Naqvi, Nadeem, 2010. "A theory of dynamic tariff and quota retaliation," MPRA Paper 27656, University Library of Munich, Germany.

    More about this item

    Keywords

    Tariff setting game; alternating move;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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