Perfect Equilibria in a Trade Liberalization Game

Kiminori Matsuyama

American Economic Review, 1990, vol. 80, issue 3, 480-92

Abstract: The credibility of temporary protection is examined in a simple infinite horizon, perfect information game of timing in which the domestic government uses the threat of future liberalization to induce the domestic firm to invest. All pure strategy subgame-perfect equilibria are cyclical and, surprisingly, one of them implements optimal temporary protection. However, this equilibrium fails to pass another credibility criterion called "renegotiation-proof." The game has a unique stationary subgame-perfect equilibrium in mixed strategies. Copyright 1990 by American Economic Association.

Date: 1990
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Working Paper: Perfect Equilibria in a Trade Liberalization Game (1987)
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