Naqvi, Nadeem (2010): A theory of dynamic tariff and quota retaliation.
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This paper establishes relationships between static Nash equilibria and dynamic Markov perfect equilibria of tariff and quota retaliation games. In supermodular games where tariffs are strategic complements, the steady state of every, symmetric Markov perfect equilibrium must have lower tariffs than in the static equilibrium. If tariffs are strategic substitutes, tariffs in the dynamic game are higher than in the static equilibrium. The supermodular case is extended to quota competition. Instead of the well-known non-equivalence between tariff and quota retaliation outcomes under complete myopia, in some circumstances, free trade can be supported in the steady state of a Markov perfect equilibrium, regardless of whether policies employed are quotas or tariffs. We reach the conclusion that the effect of introducing dynamics crucially depends on whether the policy instruments employed by the countries are strategic substitutes or complements irrespective of whether they are tariffs or quotas.
|Item Type:||MPRA Paper|
|Original Title:||A theory of dynamic tariff and quota retaliation|
|English Title:||A theory of dynamic tariff and quota retaliation|
|Keywords:||Foreign trade policy; Tariff; Quota; Retaliation; Dynamic Game; Markov perfect equilibrium; Supermodular games|
|Subjects:||F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games
|Depositing User:||Nadeem Naqvi|
|Date Deposited:||24. Dec 2010 21:12|
|Last Modified:||11. Feb 2013 19:49|
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