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Appropriation, Deterrence, and Trade Policy in a Simple Exchange Economy

Listed author(s):
  • Charles Anderton


    (Department of Economics, College of the Holy Cross)

When appropriation possibilities are overlooked, the predictions of standard trade models can be misleading. Trade theorists need a new class of models designed to investigate the effects of appropriation possibilities on exchange. Toward this end we incorporate appropriation possibilities into the simplest model of trade: the Edgeworth box model o f pure exchange. The model predicts that exchange will occur between a Defender and an Attacker, but the terms and volume of trade will be considerably different from the standard Edgeworth box. We also discover that when the power of attack is low, a tariff designed to punish Attacker's appropriation causes welfare of both countries to increase and the volume of trade to expand. When the power of attack is high, however, a tariff penalty against appropriation causes the piracy rate to increase and the security of property to fall due to the terms-of-trade effect of the tariff. The model has applications to classical piracy, present-day software piracy, and other markets where exchange, defense, and appropriation are intertwined.

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Paper provided by College of the Holy Cross, Department of Economics in its series Working Papers with number 9801.

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Length: 39 pages
Date of creation: Jan 1998
Publication status: Published in Economics Letters, Vol 63:1, 1999, pp. 77-83.
Handle: RePEc:hcx:wpaper:9801
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