In this paper, the authors employ a three-country, two-good, general equilibrium model to analyze bilateral quota wars. It is shown that the presence of a third country or a number of countries that ...trade freely leads to fundamentally different results of retaliation: bilateral quota wars need not eliminate either multilateral or bilateral trade flows. This result generates several interesting implications for the ranking of policy instruments and the likelihood of winning trade wars.
In many economic environments agents make costly and irreversible investments (in "guns") that may enhance their respective threat payoffs but also shrink the utility possibilities set. In such ...settings, with variable threats and a variable utility possibilities set, it becomes possible to rank different bargaining solutions in term of their efficiency properties. We compare bargaining solutions within a wide class in which the influence of the threat point on the bargaining outcome varies across solutions.
We construct a three-country, two-bloc, multi-product trade model in which tariff agreements between customs union members are binding whereas inter-bloc tariff agreements are self-enforcing. Our ...main objective is to explore how the liberalization of trade between customs union members (i.e. the deepening of regional integration) affects the sustainability of tariff agreements with the rest of the world (ROW). We derive conditions under which Kemp-Wan (1976) adjustments in the external tariffs of union members result in self-enforcing tariff agreements with ROW and then use these adjustments to evaluate the general tariff-setting incentives of the two trading blocs.
We consider a simple three-country, multi-commodity trade model in which two custom union members that have successfully coordinated their external tariff policies are in the process of deepening the ...integration of their internal markets through the removal of tariffs on intra-union trade. Union and non-union countries cannot sign binding trade agreements. Owing to repeated interactions, however, they can sustain cooperative outcomes with the use of history-dependent strategies. The goal of this paper is to examine how the deepening of integration affects the set of incentive-compatible tariff agreements these parties can support. We derive conditions under which Kemp-Wan (1976) adjustments in the external tariffs of union members are sustainable and we use these adjustments as a frame of reference to evaluate the actual tariff-setting incentives of trading partners. Our analysis reveals that the deepening of integration may enlarge the set of sustainable tariff agreements with the outside country, and that this possibility crucially depends on the degree of substitutability in consumption. We also investigate the effects of integration on sustainable levels of welfare and extend our analysis to consider the effects of political economy factors.
