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The endogenous timing of tariff policy

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  • Tsuyoshi Toshimitsu

    (School of Economics, Kwansei Gakuin University)

Abstract

Using the Hamilton–Slutsky extended endogenous timing game of observable delay framework, we analyze the endogenous timing of tariff policy in the presence of a time lag between production and trade decisions. We particularly focus on the strategic relationships between the government of the importing country and an exporting monopoly firm. We show that a natural Stackelberg situation exists in which the importing country government as first mover determines the tariff rate and the exporting monopoly firm as second mover determines the production level. We also find this equilibrium is Pareto superior to both the Nash and alternative Stackelberg equilibria. This implies that commitment to a given tariff policy before the production decision is made is optimal for affected parties.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2012. "The endogenous timing of tariff policy," Discussion Paper Series 80, School of Economics, Kwansei Gakuin University, revised Feb 2012.
    • Handle: RePEc:kgu:wpaper:80
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    File URL: http://192.218.163.163/RePEc/pdf/kgdp80.pdf
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    References listed on IDEAS

    as
    1. Masayuki Hayashibara, 2002. "Industrial Concentration Reverses the Timing in a Trade Policy Game," Open Economies Review, Springer, vol. 13(1), pages 73-86, January.
    2. Collie, David, 1991. "Export subsidies and countervailing tariffs," Journal of International Economics, Elsevier, vol. 31(3-4), pages 309-324, November.
    3. Shivakumar, Ram, 1993. "Strategic trade policy : Choosing between export subsidies and export quotas under uncertainty," Journal of International Economics, Elsevier, vol. 35(1-2), pages 169-183, August.
    4. Lapan, Harvey E, 1988. "The Optimal Tariff, Production Lags, and Time Consistency," American Economic Review, American Economic Association, vol. 78(3), pages 395-401, June.
    5. David Collie, 1994. "Endogenous timing in trade policy games: Should governments use countervailing duties?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 191-209, March.
    6. Kit Wong & Kong Chow, 1997. "Endogenous Sequencing in Strategic Trade Policy Games Under Uncertainty," Open Economies Review, Springer, vol. 8(4), pages 353-369, October.
    7. Arvan, Lanny, 1991. "Flexibility versus commitment in strategic trade policy under uncertainty : A model of endogenous policy leadership," Journal of International Economics, Elsevier, vol. 31(3-4), pages 341-355, November.
    8. Albaek, Svend, 1990. "Stackelberg Leadership as a Natural Solution under Cost Uncertainty," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 335-347, March.
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    Cited by:

    1. Tsuyoshi Toshimitsu, 2013. "A Note on the Endogenous Timing of Tariff Policy in the Presence of a Time Lag between Production and Trade Decisions," Open Economies Review, Springer, vol. 24(2), pages 361-369, April.

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    More about this item

    Keywords

    endogenous timing game; Nash equilibrium; Stackelberg equilibrium; tariff policy; monopoly;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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