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| Author: | Matsuyama, K. |
| Title: | Perfect equilibria in a trade liberization game |
| Journal: | American Economic Review
1990 : JUN, VOL. 80:3, p. 480-492 |
| Index terms: | TRADE POLICY LIBERALISM EQUILIBRIUM ANALYSIS IMPORTING COMPETITION STRATEGY |
| Language: | eng |
| Abstract: | In trade policy debates, it is often argued that domestic industries should receive temporary protection from import competition. The credibility of temporary protection is examined in a simple infinite horizon, perfect information game of timing in which the domestic government uses the threat of future liberalization to induce domestic firms to invest. All pure strategy subgame-perfect equilibria are cyclical, and one of them implements optimal temporary protection. However, this equilibrium fails to pass another credibility criterion called Renegotiation-proof. The game has a unique stationary subgame-perfect equilibrium in mixed strategies. |
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