A Theory of Dynamic Tariff and Quota Retaliation

Donald Keenan, Nadeem Naqvi and Gerald Pech ()

No 201144, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper characterizes, under the most general conditions to date, the steady-state equilibria of a symmetric, two-country trade model in which countries move in alternating-move, dynamic either tariffsetting or quota-setting games in Markov Perfect strategies, and compares the respective equilibrium level of tariffs and quotas with the corresponding pairs in the equilibria of static games. Our results imply that the alleged non-equivalence of the outcomes of tariff-retaliation (neither free trade nor autarky) and quota-retaliation (asymptotic autarky) games in the literature depends crucially on complete myopia, and can be dismissed altogether once dynamic considerations are introduced in an operationally significant manner.

Keywords: Foreign trade policy; Tariff; Quota; Retaliation; Dynamic Game; Markov perfect equilibrium; Supermodular games (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011
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Working Paper: A theory of dynamic tariff and quota retaliation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201144

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