international coordination of trade and domestic policies the past half century has seen a dramatic multilateral reduction in tariff barriers under general agreement on tariffs and trade gatt negotiations however as tariff barriers have fallen attention has shifted to the use of domestic policies as secondary trade barriers a primary concern is that as countries sign trade agreements that constrain their ability to pursue trade goals through trade policy there will be unilateral incentives for governments to distort their domestic policies as a secondary means of protection 1 increasingly international trade disputes revolve around a country s use of internal regulations as a means of restricting trade the united states has successfully challenged the system of liquor taxes in both japan and korea as discriminating against imported liquor while venezuela and brazil have challenged american standards for reformulated and conventional gasoline as trade protection masquerading as environmentalism gatt contains several articles concerning the international regulation of domestic policies but the question of how to fully incorporate domestic policies within gatt negotiations and other international trade agreements remains contentious indeed at both the ministerial meeting in 1994 at the close of the uruguay round and the recent unsuccessful ministerial conference in seattle many gatt delegates renewed demands for the relationship between trade and various domestic policies e g environmental policy labor standards or competition policy to be examined despite the importance that has recently been placed on international cooperation over domestic policies no theoretical basis exists for considering how to cooperate over both trade and domestic policies within an international agreement previous papers on negotiation over two instruments of protection e g copeland 1989 1990 thomas l hungerford 1991 have assumed asymmetric limitations on cooperation i e they assume that one of the two instruments is either nonobservable or nonnegotiable this paper extends such work by investigating cooperation over two negotiable instruments of protection under symmetric limitations on cooperation and provides insight into the design of international trade agreements that incorporate cooperation over domestic policies i adopt the view that enforcement issues are central to the understanding of international cooperation one of the challenges of international cooperation is the absence of a central authority to enforce the terms of an agreement without access to an external enforcement mechanism international agreements are viable only as long as member countries view continued cooperation to be in their own self interest i e the benefits from cooperating outweigh the potential gains from cheating 2 while the gatt department of economics university of miami p o box 248126 coral gables fl 33124 e mail ederington miami edu i would like to thank bob staiger bob baldwin wolfgang keller phillip mccalman jenny minier seminar participants at the nber conference on trade the environment and natural resources and two anonymous referees for comments on earlier versions of this paper any remaining errors are of course my own for example brian r copeland 1990 examined negotiation over one trade barrier leaving a secondary trade barrier e g nontariff barriers domestic legislation etc to be set noncooperatively he shows that trade liberalization will induce substitution toward the less efficient nonnegotiable instrument of protection due to the unilateral incentives to maintain trade protection facing countries thus within a cooperative framework the two types of barriers serve as imperfect substitutes for each other 2 as stated by kenneth w dam in his review of the gatt institution the best guarantee that a commitment of any kind will be kept particularly in an international setting where courts are of limited importance and even more important marshals and jails are nonexistent is that the parties continue to view adherence to their agreement in their mutual interest thus the gatt system unlike most legal systems is not designed to exclude self help in the form of retaliation rather retaliation subjected to established procedures and kept within prescribed bounds is made the heart of the gatt system dam 1970 pp 80 81

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

the role of multilateral institutions in international trade cooperation the world trade organization wfo lacks the power to directly enforce agreements it is therefore important to understand what role the wto can play to facilitate international cooperation and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements this paper examines two potential benefits of a multilateral trade institution first verifying violations of the agreements and informing third parties thus facilitating multilateral reputation mechanisms second promoting multilateral trade negotiations rather than a web of bilateral negotiations the model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships

tariff retaliation versus financial compensation in the enforcement of international trade agreements the authors analyze whether financial compensation is preferable to the current system of dispute settlement in the world trade organization that permits member countries to impose retaliatory tariffs in response to trade violations committed by other members they show that monetary fines are more efficient than tariffs in terms of granting compensation to injured parties when there are violations in equilibrium however fines suffer from an enforcement problem since they must be paid by the violating country if fines must ultimately be supported by the threat of retaliatory tariffs they fail to yield a more cooperative outcome than the current system the authors also consider the use of bonds as a means of settling disputes if bonds can be posted with a third party they do not have to be supported by retaliatory tariffs and can improve the negotiating position of countries that are too small to threaten tariff retaliation

self enforcing trade agreements and lobbying abstract in an environment where international trade agreements must be enforced via promises of future cooperation the presence of an import competing lobby has important implications for optimal punishments when lobbies work to disrupt trade agreements a nash reversion punishment scheme must balance two conflicting objectives longer punishments help to enforce cooperation by increasing the government s costs of defecting but because the lobby prefers the punishment outcome this also incentivizes lobbying effort and with it political pressure to break the agreement thus the model generates an optimal length for nash reversion punishments and it depends directly on the political influence of the lobbies trade agreement tariffs are shown to be increasing in the political influence of the lobbies as well as their patience levels

a theory of disagreement in repeated games with bargaining this paper proposes a new approach to equilibrium selection in repeated games with transfers supposing that in each period the players bargain over how to play although the bargaining phase is cheap talk following a generalized alternating offer protocol sharp predictions arise from three axioms two axioms allow the players to meaningfully discuss whether to deviate from their plan the third embodies a theory of disagreement that play under disagreement should not vary with the manner in which bargaining broke down equilibria that satisfy these axioms exist for all discount factors and are simple to construct all equilibria generate the same welfare optimal play under agreement generally requires suboptimal play under disagreement whether patient players attain efficiency depends on both the stage game and the bargaining protocol the theory extends naturally to games with imperfect public monitoring and heterogeneous discount factors and yields new insights into classic relational contracting questions

a test of a theory of strategically retaliatory trade barriers within a game theoretic lobbying model the formation of strategic trade barriers is examined trade barriers are modeled as comprising a political component as well as a strategically retaliatory component that serves to deter foreign protectionism within this theoretical framework the optimal policy is to erect retaliatory barriers against all imports even though the partner country protects only a subset of goods that are traded the theory is described and tested using cross industry u s nontariff barrier ntb data against nine developed countries in 1983 a three equation simultaneous tobit model is estimated for this purpose whether u s ntbs against these partner countries are retaliatory and if so whether the cross industry structure of protection validates the predictions of the theory are empirically addressed

bargaining with two sided incomplete information an infinite horizon model with alternating offers this paper examines an infinite horizon bargaining model incorporating five features two sided incomplete information with potentially information revealing strategies an infinite horizon uncertainty concerning the potential gains from trade an illumination of interesting qualitative bargaining issues and plausible free from arbitrarily specified out of equilibrium conjectures equilibria these features motivated in the paper have powerful implications a nash equilibrium exists and is generically both unique and sequential comparative static implications of variations in the game s specifications are developed we find that natural indications of bargaining strength emerge from the model and establish the intuitive result that an increase in a player s relative bargaining strength makes that player more likely to capture the gains from bargaining

renegotiation and symmetry in repeated games abstract the paper derives a theory of renegotiation proofness in symmetric repeated games based on a notion of equal bargaining power according to consistent bargaining equilibrium a player can mount a credible objection to a continuation equilibrium in which he receives a particular expected present discounted value if there are other self enforcing agreements that never give any player such a low continuation value after any history the definition does not imply strongly symmetric solutions but under modest assumptions consistent bargaining equilibria of infinitely repeated games with perfect monitoring are strongly symmetric such solutions have an unusually elementary characterization journal of economic literature classification numbers c7 c72

risk pooling between households and risk coping measures in developing countries evidence from rural bangladesh abstract using data from rural bangladesh i test whether income risks are pooled among villagers between neighboring households and between related households living in different villages i find evidence that risks to food consumption are pooled between neighboring households and between related households but not among villagers as for nonfood consumption i find little evidence of risk pooling except between unrelated neighboring households i also find that while households belonging to a neighborhood network do not take any special measures during an economic hardship those not belonging to any such network try to smooth consumption by selling off livestock and other assets and by getting interest free loans negative income shocks are found to have little effect on labor supply or private transfers

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

tariffs with private information and reputation abstract several tariff games are examined in which the home country has private information about whether its government is a low or high tariff type if the foreign government is uncertain about this type in a one shot game its nash equilibrium tariff will be lower higher than if it knew the home government were a low high tariff type in two multistage games misleading behavior by the home government is an equilibrium strategy for sufficiently high discount factors whether or not uncertainty is persistent is important for welfare results tariff rules do not necessarily dominate discretionary policy in these models

persistent protection in an international exit game abstract this paper examines the strategic behavior of two countries in a duopoly exit game with declining demand in the export market we consider whether countries have a strategic rational to maintain rather than unilaterally or jointly reduce their subsidies conditions under which persistent subsidization is justified from a national perspective are derived by maintaining subsidies one country can gain a strategic advantage by forcing its rival to exit earlier an outcome where only one country applies the subsidy is not attainable free trade is less likely to occur close to the end of the game

risk and insurance in a rural credit market an empirical investigation in northern nigeria credit contracts play a direct role in pooling risk between households in northern nigeria repayments owed by borrowers depend on realizations of random shocks by both borrowers and lenders the paper develops two models of state contingent loans the first is a competitive equilibrium in perfectly enforceable contracts the second permits imperfect information and equilibrium default estimates of both models indicate that quantitatively important state contingent payments are embedded in these loan transactions but that a fully efficient risk pooling equilibrium is not achieved the research is based on a year long survey in zaria nigeria conducted by the author

household consumption smoothing through ethnic ties evidence from cote d ivoire abstract this paper investigates the hypothesis that households in cote d ivoire take part in spatially diversified risk sharing arrangements with members of their own ethnic group empirical tests are presented using several estimation methods to deal with heteroscedasticity measurement error and extreme value problems to examine whether results are robust across estimation procedures the hypothesis of complete risk sharing within ethnic groups is rejected however there appears to be some partial insurance performed by individual households with other members of the same ethnic group particularly for the households residing in the regions least likely to have access to formal financial arrangements

a theory of managed trade this paper proposes a theory that predicts low levels of protection during periods of normal trade volume coupled with episodes of special protection when trade volumes surge this dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game facing volatile trade swings high trade volume leads to a greater incentive to defect unilaterally from cooperative tariff levels therefore as the volume of trade expands the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check copyright 1990 by american economic association

the free trade epidemic of the 1860s and other outbreaks of economic discrimination why was there an abrupt increase in economic openness in europe in the 1860s this increase may have been the result of a contagion process in which the cobden chevalier treaty between britain and france threatened to displace third party exports to fra nce with british exports as a result most european states signed similar treaties with france which had further ripple effects this article outlines a formal model of this process based on the assumption that an agreement between two states incre ases the desirability of similar treaties to third parties propositions regarding the rate and pattern of spread of treaties are derived from this model this article then discusses the insights these propositions may offer into the rise and fall of the most favored nation network of treaties between 1860 and 1929 at a theoretical level the model aims to link the microlevel processes underlying state preferences to system level phenomena at a substantive level this analysis offers insight into the current explosion of regionalism

agricultural trade negotiations as a strategic game abstract this study views multilateral trade negotiations as a strategic game among nations or regions including taxpayer consumer and producer components payoffs are calculated from an intermediate run international trade model initialized with 1989 data for the public at large the nash equilibrium and socially optimal outcome is liberalization of trade unilateral or multilateral maintenance of the status quo of market distortions costing the world billions of dollars each year is rational only if producer payoffs are sovereign so that strategies optimal for producers are considered optimal for nations remedial policies are discussed including opportunities for economic education political system reform and less incentives for producers to scuttle multilateral trade negotiations

motivations to remit evidence from botswana in this article a theory of motivations to send remittances is described and tested with data from botswana altruism is one of the motivations tested and found to be an insufficient explanation for remittances among migrants in botswana a refinement of the model stipulates a modified altruism or enlightened self interest in this model the relationship between the migrant and family is tempered by an implicit understanding of mutual benefit the household strategy may be to encourage some members to migrate as a means of spreading risk and sharing gains the household strategy is similar to an insurance policy where migration is to places where market potential is high the risks incurred might be high the example is given of migration during a drought in botswana migrant remittances were greater in households with more cattle or households with more to lose drought alone was not statistically related to remittances increases in remittances were related to increased levels of education it is suggested that repayment was the motive for parents investment in migrants education migrants gains are identified as the potential for an inheritance the security of channeling investments through a trusted family member and security in having a home to return to it is pointed out that the altruism and family remittances from urban migration were strategies that bridged the simple dynamic of either urban development or rural development impacting on family welfare it is suggested that household models of economy adopt some measure to express the relationship of household wealth to remittances from urban migrants

child income appropriations as a disease coping mechanism consequences for the health education relationship this paper analyses the relationships between hiv aids and education taking into account the appropriative nature of child income using a theoretical model we show that considering remittances from one s child as an insurance asset can reverse the usual negative relationship between disease prevalence and educational investment this prediction confirms the results of an empirical study conducted on data compiled from the demographic and health survey dhs database for 12 sub sahara african countries for children aged between 7 and 22 years old using regional hiv prevalence as a measure of health risk we find that the sign of the slope between health risk and the enrolment of children is not constant splitting the data based on expected remittance patterns for example rural versus urban we obtain that the effect is most likely driven by household characteristics related to child income appropriation

customs unions and the core abstract customs union formation is modeled as a two stage game in the first stage countries make coalitional choices according to core theory in the second stage optimal tariffs are determined this yields a theory that predicts which customs unions form an example shows that a customs union can be an equilibrium even when both member countries do better at free trade

gatt a cooperative equilibrium in a noncooperative trading regime abstract as global tariff rates have fallen the use of nontariff barriers to trade have become more prevalent one incentive for a country to depart from free trade is to levy the optimal tariff in order to maximize domestic welfare the gatt was designed to maintain free trade through a system of managed retaliation as is well known in a game theoretic trade model of tariffs with no uncertainty free trade is an equilibrium outcome however with the introduction of uncertainty and asymmetric information it is shown that the equilibrium outcome s has each country imposing nontariff barriers to trade

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

trade skirmishes and safeguards a theory of the wto dispute settlement process i propose a framework within which to interpret and evaluate the major reforms introduced to the gatt system in its transition to the wto in particular i examine the wto agreement on safeguards that has replaced the gatt escape clause article xix and the dispute settlement process dsp that resembles a court of law under the wto using this framework i interpret the weakening of the reciprocity principle under the agreement on safeguards as an attempt to reduce e ciency reducing trade skirmishes the dsp is interpreted as an impartial arbitrator that announces its opinion about the state of the world when a dispute arises among member countries i demonstrate that the reforms in the gatt escape clause should be bundled with the

trade wars and trade talks when governments meet in the international arena their actions reflect the political situations at home previous studies of trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest here we introduce domestic politics into the analysis of international economic relations we study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups our analysis sheds light on the determinants of the structure of protection in non cooperative and cooperative policy equilibria

multilateral tariff cooperation during the formation of free trade areas we consider the impact of the formation of free trade agreements on multilateral tariff cooperation we assume that countries are limited to selfenforcing multilateral arrangements that balance the gains from deviating against the costs of an ensuing trade war we find that the emergence of free trade areas will be accompanied by a temporary retreat from liberal multilateral trade policies as the initial balance supporting multilateral cooperation is upset eventually however as the full impact of the emerging free trade agreement on multilateral trade patterns is felt this initial balance tends to reemerge and liberal multilateral trade policies can be restored

multilateral trade negotiations bilateral opportunism and the rules of gatt wto abstract trade negotiations occur through time and between the governments of many countries an important issue is thus whether the value of concessions that a government wins in a current negotiation may be eroded in a future bilateral negotiation to which it is not party we identify rules of negotiation that serve to protect the welfare of governments that are not participating in the bilateral negotiation our main finding is that the two central principles of gatt wto nondiscrimination mfn and reciprocity preserve the welfare of nonparticipating governments and therefore offer a first line of defense against bilateral opportunism

does contingent repayment in microfinance help the poor during natural disasters abstract microfinances in bangladesh introduced a contingent repayment system beginning in 2002 which allowed rescheduling of savings and installments during natural disasters for affected members this paper is one of the first attempts to evaluate the system employing a unique dataset in using evidence from a flood in 2004 the author found that rescheduling plays the role of a safety net by decreasing the probability that people skip meals during negative shocks by 5 1 per cent this effect is even higher on the landless and females this study attempts to contribute to the issue regarding the poverty reduction effect of microfinances

recurrent trade agreements and the value of external enforcement abstract this paper presents a theory of dynamic trade agreements in which external institutions such as the wto play a central role in supporting credible enforcement in our model countries engage in ongoing negotiations and as a consequence cooperative agreements become unsustainable in the absence of external enforcement institutions by using mechanisms such as delays in dispute resolution and direct penalties enforcement institutions can restore incentives for cooperation despite the lack of coercive power the occurrence of costly trade disputes and the feasibility of mechanisms such as escape clauses depend on the degree to which enforcement institutions can verify and condition on events that may lead to trade disputes

determining the need for issue linkages in multilateral trade negotiations in multilateral trade negotiations trade offs usually are made within the issue areas that are on the agenda in the absence of cross issue trade offs linkages agreement may not be possible to maximize both the potential gains from trade and the scope for agreement negotiators need to be willing and able to consider the feasibility of issue linkages this raises the practical problem of determining when such trade offs are likely to be necessary although quantitative methods of policy analysis have been developed they have not been widely used by policymakers in part owing to the fact that negotiations focus largely on nontariff measures this article proposes a qualitative approach to the problem and applies it to the tokyo and uruguay round negotiations on safeguards to protect domestic industries from problems related to increases in imports

disagreement points in trade negotiations abstract this paper analyzes trade negotiations between two large countries in the framework of an alternating offer bargaining model with endogenous interim disagreement actions despite of the flexibility in disagreement tariff selection the countries would keep the status quo tariffs in disagreement periods as far as the country which benefits from keeping the status quo tariffs compensates for the other country s foregone gains from deviating in disagreement actions each equilibrium outcome converges to a corresponding nash bargaining solution whose disagreement point reflects the status quo tariff rates as well as the threat of raising the tariff to the nash tariff rate

why is the doha development agenda failing and what can be done a computable general equilibrium game theoretical approach we use a world computable general equilibrium model to simulate 143 potential trade reforms and seek solutions to the issues hampering progress in the doha development agenda dda inside the domain defined by all these possible outcomes we apply the axiomatic theory of bargaining and select the nash solution of cooperative games the solutions vary according to the objective functions adopted by the trade negotiators when real income is the objective and services are excluded or when optimising terms of trade is the objective the nash solution is the status quo trade liberalisation is feasible only when the negotiators focus on national exports or gross domestic product gdp our assessment of some possible solutions reveals that excluding members having a gdp below a certain threshold improves the bargaining process regardless of the governments objective formation of coalition such as the g20 constitutes an option for its members to block outcomes imposed by rich members we also find that side payments may be a solution but represent a very high share of the global income gain

tariff retaliation from a strategic viewpoint one of the most perplexing questions in international trade concerns the rationale for the existence of widespread barriers to trade in the current world economy 1 the numerous explanations that have been offered for the existence of tariffs are generally based on one of the following four arguments a the existence of market imperfections monopolies externalities etc invalidates the free trade theorem and thus free trade is not desirable or perhaps not obtainable b sluggish adjustment of the world economy to free trade implies that the existing tariffs are a temporary phase c non economic phenomena such as nationalism induce political or institutional tariff arrangements or d protectionist motives to improve the welfare of a country or a group of individuals in that country induce all countries to simultaneously impose tariffs while all of these factors can be important in the explanation of the existence of tariffs the purpose of this paper is to develop an extended analysis of the protectionist view the protectionist view is based on the optimal tariff theorem which states under very restrictive assumptions that a country can improve its welfare by imposing a tariff 5 12 a serious difficulty with this explanation is that the optimal tariff theorem assumes that no retaliation occurs as scitovsky 12 points out a country that could benefit from charging a tariff has monopoly power in trade surely a country sophisticated enough to exercise monopoly power in trade would expect its rivals to respond when tariffs are erected hence scitovsky argues that if protection is the monopolistic behavior of a collectivity two countries raising tariffs against each other are bilateral monopolists and we know that bilateral monopoly results in the two parties coming to some working agreement whose terms depend on their bargaining skill and are analytically indeterminate scitovsky concluded that a tariff war would result in an indeterminate solution with both countries worse off johnson 6 formalized scitovsky s agrument by allowing each country to adopt a cournot type assumption regarding its rival s reaction to a change in its own tariff thus

dynamic tariffs with asymmetric information recent developments in dynamic game theory are applied to determine when two countries can sustain freer trade given that they determine trade policies non cooperatively countries know their own level of protection but not the other country s level of protection using import trigger strategies cooperation in the form of low tariffs can be supported although there are periodic reversionary high tariff episodes however if terms of trade trigger strategies are used cooperation does not occur

reexamination of the international export quota game through the theory of social situations abstract it is well known in international trade that a unique nash equilibrium of a static quota game is no trade and the rodriguez tower alternating retaliation process yields the same outcome yet they fail to capture the notion of retaliation appropriately using the framework of the theory of social situation we construct a model of the quota retaliation as an individual contingent threats situation in a static non cooperative setting we show that every solution called a stable standard of behavior supports at least one pareto efficient combination of quotas and vice versa free trade can be rationalized by a solution journal of economic literature classification numbers c79 f13

microfinance and investment a comparison with bank and informal lending summary comparing the impact of different types of credit on households investment in bangladesh we find that loans from microfinance institutions are likely to be channeled toward non agricultural activities while both informal and bank lending are associated to a higher expenditure in agricultural inputs estimated effects are net of the differences in the amount borrowed interest rates and collateral results suggest that features which are specific to microfinance such as tight repayment schedules and land based eligibility rules may reduce the suitability of this source of funds for the farming sector

a conjectural variation approach to strategic tariff equilibria abstract this paper examines tariff equilibria in a static two country trade model under a general class of conjectures regarding foreign retaliation we assume that each country chooses its optimum tariff given some conjecture in this class and derive the associated conjectural tariff equilibrium which can be thought of as a nash equilibrium conditional on each country s conjecture about how the foreign country will retaliate our main contribution is to show that when marginal propensities to consume imports are sufficiently small increased expectation of retaliation results in lower equilibrium tariffs for both countries since countries in general probably do expect some retaliation it therefore appears that the traditional cournot nash analysis probably overstates the trade restrictiveness of tariff wars

us trade wars in the twenty first century with emerging countries make america and its partners lose again in a context of rising protectionist rhetoric this paper looks at the potential impact of trade wars initiated by a change in us trade policies we use a static multicountry multisector general equilibrium model to evaluate six modalities of three potential trade wars for a total of 18 scenarios between the usa and china between the usa and mexico and a combination of the two previous conflicts in each case we evaluate various forms of trade retaliation by the us partner s the same level of import duty as the one imposed by the usa an import duty that minimises welfare loss a duty that minimises terms of trade deterioration a duty that generates the same amount of collected revenue and finally a nash equilibrium we conclude that there is no scenario in which the us government augments its domestic welfare or gdp there may be sectoral gains in value added in the usa but they are small and to the detriment of other sectors while losses for china are relatively small potential losses for the mexican economy are significant there are also free riders of these trade wars finally the way in which trade retaliations are designed matters greatly

beyond ses a resource model of political participation this paper develops a resource model of political participation the resources considered are time money and civic skills those communications and organizational capacities that are essential to political activity these skills are not only acquired early in life but developed in the nonpolitical institutional settings of adult life the workplace organizations and churches and synagogues these resources are distributed differentially among groups defined by socioeconomic status a two stage least squares analysis shows these resources have powerful effects on overall political activity thus explaining why socioeconomic status has traditionally been so powerful in predicting participation we disaggregate overall activity into three kinds of acts those that involve giving time those that entail donating money and voting each requires a different configuration of resources resulting in different patterns of stratification across various political acts

rearranging the family income support and elderly living arrangements in a low income country this study examines the link between income and living arrangements our identification comes from exploiting a discontinuity in age in the benefit formula for the social pension in south africa in contrast to previous literature we find no association between pension income and elderly independence we do find that potential beneficiaries alter their household structure when they become pension eligible prime working age women depart and the presence of children younger than five and young women of childbearing age increase these shifts in coresidence patterns are consistent with a setting where prime age women have comparative advantage in work away from extended family relative to younger women the additional income from old age support may induce a change in living arrangements to exploit this advantage

risk sharing within the extended family evidence from the indonesia family life survey abstractin recent years there has been an increase in the availability of longitudinal household surveys in developing countries that allow the researchers to construct linkages between households with familial ties this type of data allows researchers to look at whether some household outcomes are influenced by decisions made at the extended family level this article utilizes data from two waves of the indonesia family life survey 1997 and 2000 to construct a panel of extended families in order to focus on one particular example of such outcome whether consumption risk sharing occurs among households within the extended family the findings show that after controlling for the extended family fixed effects changes in the household s own income still matter for changes in its consumption rejecting full consumption risk insurance however the coefficients on household own income are small indicating significant degrees of risk sharing results from a set of reduced form estimations suggest that ho

trade negotiations in a nash bargaining model abstract this paper examines the impact on trade negotiation outcomes due to different feasible utility payoff sets when a country s tastes or endowment patterns are biased towards a single commodity or rely heavily on international exchange to improve utility the negotiated outcome in a two country nash shapley bargaining framework generally benefits its opponent

full insurance in the presence of aggregate uncertainty this paper tests implications of full consumption insurance the object is to determine how much mileage can be obtained from a model with complete markets with such features as private information or liquidity constraints omitted the implication exploited is that individual consumption responds to aggregate risk but not to idiosyncratic risk the test involves regressing the change in household consumption onto the change in aggregate consumption and other right hand side variables such as the change in household income and change in employment status all variables other than the change in aggregate consumption are predicted to be insignificant in explaining the change in household consumption with observations on consumption and income for 10 695 households from the consumer expenditure survey the results are mixed the results for one specification exponential utility are mostly consistent with full consumption insurance the results for the other specification power utility are not

smoothing consumption by smoothing income hours of work responses to idiosyncratic agricultural shocks in rural india while research has demonstrated that farm households in developing economies are able to protect consumption from idiosyncratic crop shocks little evidence shows how this is achieved this paper examines the extent to which labor markets allow households to shift labor from farm to off farm employment and the extent to which such a shift explains the observed lack of correlation between consumption and idiosyncratic crop shocks the empirical analysis uses a novel measure of the idiosyncratic crop income shock which utilizes information on start of season cropping choices to more accurately estimate household expectations of weather

multilateral tariff cooperation during the formation of customs unions abstract we study the implications of customs union formation for multilateral tariff cooperation we model cooperation in multilateral trade policy as self enforcing in that it involves balancing the current gains from deviating unilaterally from an agreed upon trade policy against the future losses from forfeiting the benefits of multilateral cooperation that such a unilateral defection would imply the early stages of the process of customs union formation are shown to alter this dynamic incentive constraint in a way that leads to a temporary honeymoon for liberal multilateral trade policies we find however that the harmony between customs unions and multilateral liberalization is temporary eventually as the full impact of the emerging customs union becomes felt a less favorable balance between current and future conditions re emerges and the liberal multilateral policies of the honeymoon phase cannot be sustained

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

children and household economic behavior this paper looks at some of the methodological issues that arise in modeling the effects of children on household behavior and presents some estimates for selected areas for our purposes household behavior will be taken to refer to household decisions on labor supply the allocation of expenditure to different periods and the decision as to what to do with the difference between income and expenditure i shall be concerned mainly with the effects of dependent children and i restrict attention largely to western societies excerpt

multi lateral trade negotiations and the most favored nation clause abstract this paper considers the interaction between private information and the most favored nation clause in trade negotiations it demonstrates that by aggregating uncertainty over a number of trading partners the most favored nation clause may offer a welfare improvement over a set of bilateral trade negotiations this improvement is shown to be most pronounced when a large number of countries are involved in negotiations

optimal tariffs in consistent conjectural variations equilibrium abstract this paper analyzes the determination of the optimal tariff under the assumption of consistent conjectural variations ccv a general characterization of the ccv equilibrium is given we show that i there are in general a multiplicity of each equilibria and ii under certain restrictions the cournot equilibrium which is based on the assumption of no retaliation can also be a ccv equilibrium by contrast free trade is never a ccv equilibrium finally the ccv equilibrium is solved explicitly in a simple example

country bashing tariffs do bilateral trade deficits matter abstract this paper investigates the impact of restricting bilateral trade imbalances in a three country three good model bilateral trade balances matter because in the nash equilibrium each country will impose tariffs on countries with whom they have bilateral deficits or promote trade with countries with whom they have bilateral surpluses all countries lose from a nash country bashing war each country loses from the unilateral elimination of its bilateral imbalances but a country can gain from a bilateral agreement with its deficit partner provided that country has a surplus with a country devoted to free trade

three s a crowd third parties and wto dispute settlement in spite of the recent failure of two referendums the drafting of a constitution for the second biggest economic power in the world the european union eu remains a major event in the history of european integration whether the constitution or a revised version of it will come into force or not several important questions emerge how did an increased number of twenty five member states reach a conclusion whereas a lower number of fifteen had failed at previous intergovernmental attempts in particular how did the constitutional convention differ from previous intergovernmental conferences igcs at which the eu exclusively bargained its treaty documents in the past how can one explain the outcomes of the convention which proposes redistribution of power and resources among twenty five or more member states this article uses the positions of the delegates of the eu s constitutional convention to examine bargaining in a setting with few formal rules the authors use theoretical insights from a spatial model and new survey data to determine the implicit voting rule used at the convention they find that the convention differed from previous igcs because the convention was governed by consensus whereas previous eu bargains on treaties had always required unanimous support the level of consensus was higher than simple majority rule but lower than unanimity since this threshold impacted who won and who lost at the convention the authors also examine the sources of bargaining power such as delegates distance to the status quo distance to the median population size and domestic constraints the results confirm several findings in the eu bargaining and two level game literature for example that actors closer to the status quo hold a stronger bargaining position and that actors from larger member states are neither more likely nor less likely to win at the negotiating table than are actors from smaller states the findings on the irrelevance of domestic constraints also indicate why the popular votes in france and the netherlands failed

the public consequences of private inequality family life and citizen participation t r this study uses regression analysis of data from a telephone survey of 380 married couples to subject to rare empirical test the contention that because women are unequal at home they cannot be equal in the polity the argument is often made that wives disadvantage in comparison to their husbands with respect to control over family income availability of free time power over decisions or mutual respect dampens their ability to participate fully in politics in fact domestic inequalities do have implications for political activity but these effects differ from what is usually posited by being stronger for husbands than for wives for husbands control over major financial decisions and autonomy in using small amounts of time enhance their ability to participate in politics beyond what would be expected on the basis of their other characteristics in short being boss at home is politically empowering to husbands

infinitely repeated games with public monitoring and monetary transfers this paper studies infinitely repeated games with imperfect public monitoring and the possibility of monetary transfers it is shown that all public perfect equilibrium payoffs can be implemented with a simple class of stationary equilibria that use stick and carrot punishments a fast algorithm is developed that exactly computes the set of pure strategies equilibrium payoffs for all discount factors

are the poor less well insured evidence on vulnerability to income risk in rural china the authors test how well consumption is insured against income risk in a panel of sampled households in rural china they estimate the risk insurance models by generalized method of moments treating income and household size as endogenous insurance exists for all wealth groups although the hypothesis of perfect insurance is universally rejected those in the poorest wealth decile are the least well insured with 40 percent of an income shock being passed on to current consumption by contrast consumption by the richest third of households is protected from almost 90 percent of an income shock the extent of insurance in a given wealth stratum varies little between poor and nonpoor areas

insuring consumption against illness one of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness we investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from indonesia that combines excellent measures of health status with consumption information we find that there are significant economic costs associated with major illness and that there is very imperfect insurance of consumption over illness episodes these estimates suggest that public disability insurance or subsidies for medical care may improve welfare by providing consumption insurance

bilateral trade negotiations and trade diversification abstract this paper employs the nash bargaining framework to bilateral trade negotiations since country specific goods are imperfect substitutes for each other the amount of imperfection dictates a country s overall diversification or trade options which in turn determine bargaining gains evidence for semi industrialized countries tends to support this hypothesis

negotiated trade restrictions with private political pressure we consider a home government with political pressure to restrict trade the foreign country is compensated with a portion of the tariff revenues or quota rents but cannot directly observe the political pressure abroad in this setting the two countries negotiate over the volume of trade and transfer of rents depending on the level of political pressure we determine globally optimal incentive compatible trade policies in which the home government has no incentive to overstate or understate the pressure for protection

gradualism in aid and reforms abstract dynamic strategic interaction between an international donor and a recipient government is analyzed to review the efficacy of aid conditionality for governance reforms in ldcs it is shown that irrespective of whether the donor can fully commit to the aid program or not for maximal improvement in governance the aid should be disbursed in increments with each subsequent tranche being conditional on prior reforms demonstrating aid gradualism while the attraction of future aid incentivizes authorities to push through reforms these reforms in turn also make aid diversion less feasible further under full commitment the optimal aid package may involve offering scope for interim aid diversion to the elite for long term improvement in governance with such aid diversion being more likely to happen when the total aid budget is large with only partial commitment so that time consistency requires the donor to reconfigure aid in each round it is shown that a interim aid diversion is no longer viable and b both aid and reforms exhibit strong gradualism or what is known as the starting small and grow later principle in commitment models

sovereign debt as intertemporal barter author s kletzer kenneth m wright brian d abstract borrowing and lending between sovereign parties is modeled as intertemporal barter that smoothes the consumption of a risk averse party subject to endowment shocks the surplus anticipated in the relationship offers sufficient incentive for cooperation by all parties including any other competitive agents who are potential lenders to the sovereign the sole punishments consist of renegotiation proof changes in the path of future payments we show that intertemporal trade can be sustained in the absence of any exogenous enforcement of lending relationships whatsoever that is borrowing and lending are possible under anarchy and are supported by punishments that consist of cheating any cheater long term implicit relationships may be fulfilled as the continual renegotiation of simple incomplete short term loans the analysis suggests that the crucial role of the explicit loan contract is the identification of the relationship and the parties involved

a theory of trade concessions abstract we present a model of tariff disputes and concessions consisting of an infinitely repeated game under bilateral incomplete information given potential agreements to be reached through unilateral or reciprocal concessions we find that an agreement involving reciprocal concessions is reached immediately if the discount factor is large and or the volume of trade is small otherwise prior beliefs about country type matter when both countries hold pessimistic priors immediate reciprocal concessions still occur very different prior beliefs lead to an immediate unilateral concession of the pessimistic country whereas optimistic priors coupled with low discount factors may generate delayed agreements 1997 elsevier science b v all rights reserved

the determination of price and output quotas in a heterogeneous cartel applying a selection criterion that uses both subgame perfection and the nash bargaining solution this paper investigates the relationship between firms cost functions and collusive behavior it is found that the optimal collusive price exceeds the price that the low cost firm would set if it was a monopolist comparative statics reveal that the optimal collusive price is increasing in the low cost firm s unit cost but is decreasing in the high cost firm s unit cost when the cost differential between firms is sufficiently large copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

trade wars a comparative study of anglo hanse franco italian and hawley smoot conflicts three trade wars are examined using variable sum game theory the anglo hanse trade wars 1300 1700 are explained as an iterated prisoners dilemma that failed to evolve into cooperation due to transaction costs rent seeking and economic recession the late igthcentury tariff war between france and italy is a case of an asymmetric trade war that illustrates the danger to a weak country of provoking a trade war with a strong country with the result that the former is forced to make major concessions the hawley smoot conflicts of the 1930s are cited as an example of the cooperation inhibiting effect of publicness in trade negotiations

the negotiation of sustainable tariffs abstract the governments of two countries explicitly negotiate over a new pair of tariffs as soon as they reach agreement the countries put into effect the agreed upon pair of tariffs which must be self enforcing we investigate how the difference in the two governments patience affects the negotiation results provided that the common optimum tariff is the status quo tariff rate for each country we find that the country with the more patient government gains most from the negotiation if the time lag between a defection and punishment in the implementation phase is short the opposite is true if the response lag in the implementation phase is long

health shocks and consumption smoothing in rural households does microcredit have a role to play abstract this paper estimates using a large panel data set from rural bangladesh the effects of health shocks on household consumption and how access to microcredit affects households response to such shocks households appear to be fairly well insured against health shocks our results suggest that households sell livestock in response to health shocks and short term insurance is therefore attained at a significant long term cost however microcredit has a significant mitigating effect households that have access to microcredit do not need to sell livestock in order to insure consumption microcredit organizations and microcredit therefore have an insurance role to play an aspect that has not been analyzed previously

is the extended family altruistically linked direct tests using micro data this paper uses panel study of income dynamics data on parents and their adult children to test the standard altruism model this model predicts that within the extended family the distribution of consumption is independent of the distribution of resources the authors findings strongly reject this prediction copyright 1992 by american economic association