Stable Tariffs and Retaliations

11 Pages Posted: 29 Apr 2005

See all articles by Reza Oladi

Reza Oladi

Utah State University - College of Business - Department of Economics

Abstract

A two-country, two-commodity model of trade is considered to reformulate the tariff retaliations. It is known that tariff retaliations lead to a Nash-equilibrium, a non-free-trade outcome. However, the negotiation process underlying the Nash equilibrium does not capture the notion of retaliation properly. We use the 'contingent threat situation' to reformulate tariff retaliations. In this context, we show that the free trade is a stable outcome. More surprisingly, this interesting result is also valid for the 'Johnson case', where one country is better off under the tariff-ridden Nash equilibrium compared to free trade.

Suggested Citation

Oladi, Reza, Stable Tariffs and Retaliations. Review of International Economics, Vol. 13, No. 2, pp. 205-215, May 2005. Available at SSRN: https://ssrn.com/abstract=712196

Reza Oladi (Contact Author)

Utah State University - College of Business - Department of Economics ( email )

3530 Old Main Hill
Logan, UT 84322-3530
United States

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