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Threats and Promises in Tariff Setting

Taiji Furusawa ()

No 635, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: The paper analyzes tariff-settings by two large countries, in an alternating move, infinitely repeated game. We find that there always exists a ``non-cooperative'' Markov perfect equilibrium in which countries continue to select their individual Nash tariffs. If countries are patient, however, there are also multiple ``cooperative'' Markov perfect equilibria in which countries mix their actions on their tariff space so that the resulting stochastic path indicates gradual tariff reduction with occasional retreats. In such an equilibrium, a country unilaterally lowers its tariff rate, which may be reciprocated by the other country in the future

Keywords: Tariff setting game; alternating move (search for similar items in EconPapers)
JEL-codes: C73 F13 (search for similar items in EconPapers)
Date: 2004-08-11
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