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Title:A theory of dynamic tariff and quota retaliation PDF Logo
Authors:Keenan, Donald C.
Naqvi, Nadeem
Pech, Gerald
Issue Date:2011
Series/Report no.:Joint discussion paper series in economics 44-2011
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.
Subjects:foreign trade policy
tariff
quota
retaliation
dynamic game
Markov perfect equilibrium
supermodular games
Document Type:Working Paper
Appears in Collections:MAGKS Joint Discussion Paper Series in Economics, Universität Marburg

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