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Policy Synchronization and Staggering in a Dynamic Model of Strategic Trade


  • Praveen Kujal

    (Universidad Carlos III de Madrid)

  • Juan Ruiz

    (Universidad Carlos III de Madrid)


This paper studies steady-state, Markov-Perfect strategic trade policy when (infinitely lived) governments are committed to trade policy during two periods. We compare the case in which both governments choose their export subsidies in the same periods (synchronization) versus the case in which they set them in alternate periods (staggering). We find that, under Cournot competition, welfare is higher when both governments synchronize their choice of export-promoting policy, since export subsidies are lower (closer to the cooperative solution) than when governments set them sequentially. Retaliation is therefore stronger and more harmful when governments alternate as (temporary) Stackelberg leaders. Synchronization is the equilibrium of the pre-commitment game in which both governments choose when to set their export subsidies. These results are robust to having stochastic length of commitment period and to allowing predetermined but flexible choice of subsidies by both governments. We also analyze the results of policy-staggering under alternative modes of competition and the possibility of firms investing in R&D.

Suggested Citation

  • Praveen Kujal & Juan Ruiz, 2003. "Policy Synchronization and Staggering in a Dynamic Model of Strategic Trade," International Trade 0302003, EconWPA.
  • Handle: RePEc:wpa:wuwpit:0302003
    Note: Type of Document - pdf file; prepared on Scientific Workplace; to print on any printer; pages: 36 ; figures: included in text

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    References listed on IDEAS

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    11. Kujal, Praveen & Ruiz, Juan, 2003. "Cost effectiveness of R&D and the robustness of strategic trade policy," UC3M Working papers. Economics we030401, Universidad Carlos III de Madrid. Departamento de Economía.
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    More about this item


    Strategic Trade Policy; Retaliation; Markov Perfect Equilibria; Policy-Synchronization.;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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