Sustaining free trade in repeated games without government commitment

Michael Devereux

No 199006, Working Papers from School of Economics, University College Dublin

Abstract: The paper examines how free trade can be sustained in a repeated tariff game in a simple two-country general equilibrium model. In the standard model, free trade can be sustained by "punishment strategies" with only a mild degree of forward looking behaviour on the part of governments. However, when there are short term factor market rigidities, and governments cannot precommit to an ex-ante optimal tariff, it may be much more difficult to sustain free trade. This is illustrated in two models.

Keywords: Free trade--Econometric models; Tariff; Equilibrium (Economics) (search for similar items in EconPapers)
Date: 1990
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http://hdl.handle.net/10197/1475 First version, 1990 (application/pdf)

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