A Theory of Managed Trade

Kyle Bagwell and Robert Staiger

American Economic Review, 1990, vol. 80, issue 4, 779-95

Abstract: This paper proposes a theory that predicts low levels of protection during periods of "normal" trade volume coupled with episodes of "special" protection when trade volumes surge. This dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game facing volatile trade swings. High trade volume leads to a greater incentive to defect unilaterally from cooperative tariff levels. Therefore, as the volume of trade expands, the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check. Copyright 1990 by American Economic Association.

Date: 1990
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Related works:
Working Paper: A Theory of Managed Trade (1989)
Working Paper: A Theory of Managed Trade (1988)
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