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Reexamination of the International Export Quota Game through the Theory of Social Situations

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  • Nakanishi, Noritsugu

Abstract

It is a well-known theorem in international trade that a Nash equilibrium between two countries that set optimal quotas non-cooperatively is the complete elimination of international trade. Yet we know that countries do by quotas on one another and that trade is not eliminated. This paper explores the hypothesis that the discrepancy lies in the weakness of Nash equilibrium concept. Specifically, we agree that the replacement of the Nash equilibrium with Greenberg's (1990) concept of a "standard-of-behavior" yields a much more plausible result. We construct a model of the quota retaliation as an "individual contingent threats situation." We show the existence of what Greenberg calls a "stable standard-of-behavior" and examine its welfare properties. In a static, essentially non-cooperative setting, we show that every stable standard-of-behavior supports at least one Pareto-efficient combination of quotas and vice versa. Free trade can be "rationalized" by a stable standard-of-behavior.
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  • Nakanishi, Noritsugu, 1999. "Reexamination of the International Export Quota Game through the Theory of Social Situations," Games and Economic Behavior, Elsevier, vol. 27(1), pages 132-152, April.
    • Handle: RePEc:eee:gamebe:v:27:y:1999:i:1:p:132-152
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    Cited by:

    1. Luo, Xiao, 2001. "General systems and [phiv]-stable sets -- a formal analysis of socioeconomic environments," Journal of Mathematical Economics, Elsevier, vol. 36(2), pages 95-109, November.
    2. Bloch, Francis & van den Nouweland, Anne, 2021. "Myopic and farsighted stable sets in 2-player strategic-form games," Games and Economic Behavior, Elsevier, vol. 130(C), pages 663-683.
    3. Xiao Luo & Yi-Chun Chen, 2004. "A Unified Approach to Information, Knowledge, and Stability," Econometric Society 2004 Far Eastern Meetings 472, Econometric Society.
    4. Xiao Luo, 2009. "On the foundation of stability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 185-201, August.
    5. Ryo Kawasaki & Takashi Sato & Shigeo Muto, 2012. "Farsighted Stable Sets of Tariff Games," TERG Discussion Papers 281, Graduate School of Economics and Management, Tohoku University.
    6. Sheng-Chieh Huang & Xiao Luo, 2008. "Stability, sequential rationality, and subgame consistency," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(2), pages 309-329, February.
    7. Wietze Lise & Richard Tol, 2004. "Attainability of International Environmental Agreements as a Social Situation," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 4(3), pages 253-277, September.
    8. Kawasaki, Ryo, 2015. "Roth–Postlewaite stability and von Neumann–Morgenstern stability," Journal of Mathematical Economics, Elsevier, vol. 58(C), pages 1-6.
    9. Kawasaki, Ryo & Sato, Takashi & Muto, Shigeo, 2015. "Farsightedly stable tariffs," Mathematical Social Sciences, Elsevier, vol. 76(C), pages 118-124.
    10. PERJU, Genoveva Elena, 2009. "Retaliatory disagreement point with asymmetric countries. Evidence from European wine sector during enlargement," MPRA Paper 17757, University Library of Munich, Germany, revised 03 Oct 2009.

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