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Whom to Send to Doha? The Shortsighted Ones!

  • Mario Larch ,
  • Wolfgang Lechthaler

Why are empirically observed tariffs so much lower than theoretically calculated Nash-equilibrium tariffs? We argue that this gap can be narrowed by using a dynamic model instead of a static model. This approach has two advantages. (i) It allows us to take account of the transitional process after a change in tariffs. (ii) It allows us to take account of the shortsightedness of policy makers. We show that Nash-equilibrium tariffs based on a dynamic trade model are lower than Nash-equilibrium tariffs based on a static model. We also show that shortsighted politicians tend to set lower tariffs than politicians with a long planning horizon

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1695.

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Length: 25 pages
Date of creation: Apr 2011
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Handle: RePEc:kie:kieliw:1695
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