Nash Equilibrium Tariffs and Illegal Immigration: An Analysis of Preferential Trade Liberalization

Federal Reserve Bank of St. Louis Working Paper No. 2007-021A

24 Pages Posted: 25 May 2007

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Ryo Takashima

West Virginia University

Date Written: May 2007

Abstract

We use a version of the small-union Meade model to consider the effects of interdependent import tariffs in the presence illegal immigration. First, we analyze the condition under which illegal immigration is likely to increase (or decrease) in response to reciprocal trade liberalization between the source and host nations (of illegal immigration). Next we describe the Nash equilibrium in tariffs between these nations and discus how a liberalization of tariffs starting from this Nash equilibrium is likely to affect their utility. Finally, we consider the effect of the host nation's liberalization of the import tariff (imposed on its imports from a third nation). We show that strategic considerations regarding the effect of this tariff liberalization on the Nash equilibrium tariffs can modify the traditional (trade creating/diverting) gains from such liberalization.

Keywords: Preferential Trade Agreement, illegal immigration, second-best tariff

JEL Classification: F11, F22

Suggested Citation

Bandyopadhyay, Subhayu and Takashima, Ryo, Nash Equilibrium Tariffs and Illegal Immigration: An Analysis of Preferential Trade Liberalization (May 2007). Available at SSRN: https://ssrn.com/abstract=988371 or http://dx.doi.org/10.2139/ssrn.988371

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Ryo Takashima

West Virginia University ( email )

Morgantown, WV 26506
United States

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