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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.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/44-2011_naqvi.pdf
File Function: First version, 2011
Download Restriction: no

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201144.

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Length: 24 pages
Date of creation: 2011
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201144
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  1. Ausubel, Lawrence M & Deneckere, Raymond J, 1993. "A Generalized Theorem of the Maximum," Economic Theory, Springer, vol. 3(1), pages 99-107, January.
  2. Taiji Furusawa, 2004. "Threats and Promises in Tariff Setting," Econometric Society 2004 Far Eastern Meetings 635, Econometric Society.
  3. Dana, Rose-Anne & Montrucchio, Luigi, 1986. "Dynamic complexity in duopoly games," Journal of Economic Theory, Elsevier, vol. 40(1), pages 40-56, October.
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