Retaliatory disagreement point with asymmetric countries. Evidence from European wine sector during enlargement

PERJU, Genoveva Elena (2009): Retaliatory disagreement point with asymmetric countries. Evidence from European wine sector during enlargement.

Abstract

The vector space model facilitates a very useful representation of the strategic interaction in trade because it is possible to incorporate both symmetric and asymmetric features of the players. This paper characterizes the Nash solution of the non-cooperative international trade game in the orthogonal vector space. We have used the standard properties of the Nash solution to determine if the non-cooperative action-reaction trade policy space should be written in terms of 'import-import' or 'import-export' quotas as strongest punishment. The trade policy space defined by import-export' quotas is not a Nash solution of the non-cooperative game but an improvement in the disagreement set. We show the positive correlation between import and export quotas using data on trade relations between EU-15, Romania, Hungary and Bulgaria for wine sector during 1995-2005. In our model the outcome of the non-cooperative trade is autarky. Retaliation is played when countries restrict their imports to one third of the national optimum.

• Item Type: MPRA Paper
• Language: English
• Keywords: asymmetries, quotas, non-cooperative game, disagreement points,Nash solution
• Subjects: F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F5 - International Relations, National Security, and International Political Economy > F51 - International Conflicts ; Negotiations ; Sanctions; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

References

[1] Baldwin, Robert E, Determinants of the Commodity Structure of U.S. Trade, American Economics Review 61, (1971),126-146

[2] Bond, W. Eric and Park, Jee-Jyeong, Gradualism in Trade Agreements with Asymmetric countries, Journal of International Economics 50, (2000),473-495

[3] Cadot, Olivier, de Melo, Jaime, Olarreaga, Mercelo, Harmonizing External Quotas in an FTA. A step Backward?, Economics and Politics 14, (2002), 259-282

[4] Cowell, Frank, Microeconomics. Principles and Analysis, Oxfrd University Press,(2006)

[5] Feenstra, Robert C, Advanced International Trade: Theory and Evidence NBER (2002)

[6] Grossman,M. Gene and Helpman, Elhanan , Trade wars and trade talks, Journal of Political Economy, NBER, (2002)

[7] Greene, William , Econometric Analysis, Prentice Hall, New York University (2003)

[8] Lapan, Harvey E. and Gervais, Jean , The Nonequivalence of Import and Export Quotas in Strategic Equilibrium, Review of International Economics 102, (2004), 130-137

[9] Milner, Helen , Resisting Protectionism. Global industries and the politics of international trade., Princeton University Press, New Jersey , (1988)

[10] Noritsugu Nakanishi , Reexamination of the International Export Quota Game Through the Theory of Social Situations, Games and Economic Behavior 27(1), (1999), 132-152

[11] Olson, Mancur , The Logic of Collective Action, Harvard University Press, Cambridge (1965)

[12] Syropoulos, Constantinos, Dinopoulos, Elias and Kreinin, Mordechei E. , Bilateral quotas wars, Canadian Journal of Economics, XXVIII(4a), (1995), 939-944

[13] Tower, Edward, The Optimum Quota and Retaliation, Review of Economic Studies , 4, (1975), 623-630

[14] Trefler, Daniel , Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy, Journal of Political Economy , (101)1, (1993), 138-160

[15] Wooldridge, Jeffrey , Introductory Econometrics. A Modern approach, (2e),South Western, New York, (2002)