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Strategic Interaction and Trade Policymaking: Formal Analysis and Simulation

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  • William Roberts Clark
  • Erick Duchesne
  • William L. Reed

Abstract

This paper introduces a simple game‐theoretic model and a Monte Carlo simulation of trade negotiations with the aim of identifying the nature of the selection bias that may threaten valid inference from empirical tests relying on data from trade disputes. Insights from the formal model are used to critically engage recent empirical analyses. This model is applied more specifically to the American use of Section 301 as an instrument to prise open foreign markets. The results of the game‐theoretical model and the Monte Carlo simulation demonstrate that, despite significant statistical results, models of trade negotiations might potentially suffer from misspecification due to non‐random selection effects.

Suggested Citation

  • William Roberts Clark & Erick Duchesne & William L. Reed, 2006. "Strategic Interaction and Trade Policymaking: Formal Analysis and Simulation," The World Economy, Wiley Blackwell, vol. 29(4), pages 507-520, April.
    • Handle: RePEc:bla:worlde:v:29:y:2006:i:4:p:507-520
    DOI: 10.1111/j.1467-9701.2006.00797.x
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    1. Kimberly Ann Elliott & Thomas O. Bayard, 1994. "Reciprocity and Retaliation in U.S. Trade Policy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 78, April.
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