Dynamic Interactions in Trade Policy in a Differential Game Model of Tariff Protection

Kenji Fujiwara, Tsuyoshi Shinozaki, Akihiko Yanase

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    Abstract

    This paper develops a two-country dynamic game model of tariff protection to reconsider optimal trade policies and their implications for welfare. The authors show that an import subsidy is optimal in the feedback Nash equilibria, which results in a curious possibility that the domestic market is monopolized by the foreign firrm. However, welfare comparisons among Nash equilibria, free trade, and autarky reveal that feedback Nash equilibria involve higher welfare than both autarky and free trade, i.e. dynamic noncooperative choices of policy serve as tacit policy coordination and ensure larger trade gains relative to free trade.

    Original languageEnglish
    Pages (from-to)689-698
    Number of pages10
    JournalReview of Development Economics
    Volume15
    Issue number4
    DOIs
    Publication statusPublished - 2011 Nov 1

    ASJC Scopus subject areas

    • Geography, Planning and Development
    • Development

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