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A Theory of Dynamic Tariff and Quota Retaliation


  • Donald C. Keenan

    (University of Georgia, Athens)

  • Nadeem Naqvi

    () (Justus Liebig University, Giessen)

  • Gerald Pech

    (KIMEP, Almaty)


This paper characterizes, under the most general conditions to date, the steady-state equilibria of a symmetric, two-country trade model in which countries move in alternating-move, dynamic either tariffsetting or quota-setting games in Markov Perfect strategies, and compares the respective equilibrium level of tariffs and quotas with the corresponding pairs in the equilibria of static games. Our results imply that the alleged non-equivalence of the outcomes of tariff-retaliation (neither free trade nor autarky) and quota-retaliation (asymptotic autarky) games in the literature depends crucially on complete myopia, and can be dismissed altogether once dynamic considerations are introduced in an operationally significant manner.

Suggested Citation

  • Donald C. Keenan & Nadeem Naqvi & Gerald Pech, 2011. "A Theory of Dynamic Tariff and Quota Retaliation," MAGKS Papers on Economics 201144, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201144

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    References listed on IDEAS

    1. Ausubel, Lawrence M & Deneckere, Raymond J, 1993. "A Generalized Theorem of the Maximum," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 99-107, January.
    2. Dana, Rose-Anne & Montrucchio, Luigi, 1986. "Dynamic complexity in duopoly games," Journal of Economic Theory, Elsevier, vol. 40(1), pages 40-56, October.
    3. Taiji Furusawa, 2004. "Threats and Promises in Tariff Setting," Econometric Society 2004 Far Eastern Meetings 635, Econometric Society.
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    1. repec:ksp:journ1:v:4:y:2017:i:3:p:247-262 is not listed on IDEAS

    More about this item


    Foreign trade policy; Tariff; Quota; Retaliation; Dynamic Game; Markov perfect equilibrium; Supermodular games;

    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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