TY - JOUR
T1 - Dynamic Interactions in Trade Policy in a Differential Game Model of Tariff Protection
AU - Fujiwara, Kenji
AU - Shinozaki, Tsuyoshi
AU - Yanase, Akihiko
PY - 2011/11
Y1 - 2011/11
N2 - 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.
AB - 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.
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U2 - 10.1111/j.1467-9361.2011.00636.x
DO - 10.1111/j.1467-9361.2011.00636.x
M3 - Article
AN - SCOPUS:80155202729
SN - 1363-6669
VL - 15
SP - 689
EP - 698
JO - Review of Development Economics
JF - Review of Development Economics
IS - 4
ER -