Existence of trading Nash equilibrium in tariff retaliation models

Wong, Siu-kee

doi:10.1016/j.mathsocsci.2003.09.004

Cited by 4 publications

(4 citation statements)

References 19 publications

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“…9 Wong (2004) considers the 2 × 2 (two good and two country) pure exchange model and provides an example to show that existence can fail if for some country, and a tariff rate set by the other country, the country's offer curve fails to enclose a convex set; this confirms that the result in Otani (1980) on the existence of compensated equilibrium in a general model with production is driven by his Assumption 11 (b), one that he refers to as "most uneasy", which convexifies the problem. Wong (2004) then proves existence with the normal goods assumption and the assumption that the area enclosed by each offer curve is a convex set for each level of the tariff chosen by the opponent, and makes the argument that his proof cannot be extended to the case with more than two countries. 10 The first order conditions of the 2 × 2 pure exchange economy with Cobb-Douglas preferences have been studied by Otani (1980) as an example, and by Kennan and Riezman (1988) who revisit Johnson's original question and provide the solution described earlier.…”

Section: Introductionmentioning

confidence: 94%

“…Thursby and Jensen (1983),Syropoulos (2002), andWong (2004), all provide sufficient conditions, in terms of elasticities, for the existence of pure strategy Nash equilibria in two country models, typically with strong assumptions on preferences Zissimos (2009). argues that quasiconcavity of the payoff function can be established in the case of symmetric Cobb-Douglas preferences in a model with two groups of countries where groups are internally homogeneous.11Kennan and Riezman (1988) consider the case with identical and symmetric preferences and aggregate endowment normalized to one whileKennan and Riezman (1984) consider nonidentical and asymmetric preferences.…”

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confidence: 99%

“…In doing so, we follow much of the literature, e.g Otani (1980). andKennan and Riezman (1988);Wong (2004) does impose the restriction.…”

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confidence: 99%

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Nash equilibrium in tariffs in a multi-country trade model

Chattopadhyay

Mitka

2019

Journal of Mathematical Economics

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We study a general equilibrium model of trade with two goods and many countries where each country sets its distortionary tariff noncooperatively to maximize the payoff of the representative household. We prove the existence of pure strategy Nash equilibria by showing that there are consistent bounds on tariff rates that are common across countries and that payoff functions in the induced game are quasiconcave. Separately, we show that best responses are strictly increasing functions, and provide robust examples that show that the game need not be supermodular. The fact that a country's payoff does not respond monotonically to increases in a competitor's tariff rate, shows that the standard condition in the literature for payoff comparisons across Nash equilibria fails in our model. We then show that the participation of at most two countries in negotiated tariff changes suffices to induce a Pareto improving allocation relative to a Nash equilibrium. Further results provided concern the location of the best response in relation to the free trade point, the monotonicity of payoffs, and the bounds on equilibrium strategies. The final result is that there is no trade if and only if the equilibrium allocation is Pareto optimal.

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Section: Introductionmentioning

confidence: 94%

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confidence: 99%

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Nash equilibrium in tariffs in a multi-country trade model

Chattopadhyay

Mitka

2019

Journal of Mathematical Economics

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“…Existence for the case of 2 countries × 2 goods is relatively straightforward. Wong (2004) presents a careful analysis of the 2-country × 2-good case. In this, as in the more general case, the key is the structure of the reaction function (surface), alternatively the curvature of the offer curve (surface), and the difficulty is that these are affected by tariffs.…”

Section: What Went Wrong? Auditing Rational Trade War Theorymentioning

confidence: 99%

Trade Wars: Nobody Expects the Spanish Inquisition

et al. 2019

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This paper assesses the utility of economic theory of rational trade wars to predict such events or to prescribe courses of action to control their consequences. Trade wars are fundamentally political events whose causes are almost completely political and whose consequences are to a significant degree also political. Contemporary economic theory has developed during a uniquely peaceful and liberal period in world history, affecting how economists have thought about trade conflicts, leaving the profession unprepared to provide serious analysis or advice.

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The Ramaswami Argument in a Multi-commodity Setting

Wong

2005

J. Econ.

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This paper considers the optimum taxes and tariffs in a multi-commodity setting. Using the argument in Ramawami (1968), I show that when all goods and factors are tradable, the home country should buy out all the foreign factors. Conditions for the optimal terms of trade are also analyzed. In a single consumption good model, the foreign factors should be bought out at the foreign autarky prices. This result is only partially true in the more general setting. While factor mobility should be prohibited before the buy-out, non-prohibitive tariffs have to be imposed on trade in goods to attain the optimum terms of trade. Copyright Springer-Verlag Wien 2005optimal tariffs and taxes, factor mobility, F11, F13, F30,

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Existence of trading Nash equilibrium in tariff retaliation models

Cited by 4 publications

References 19 publications

Nash equilibrium in tariffs in a multi-country trade model

Nash equilibrium in tariffs in a multi-country trade model

Trade Wars: Nobody Expects the Spanish Inquisition

The Ramaswami Argument in a Multi-commodity Setting

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