Chapter 2 Trade Liberalization as a Game of Decision Under Uncertainty

Abstract

Purpose − This study explains a puzzle: most countries realize the mutual benefit of tariff cutting, but tariffs never become zero.

Approach − The method is decision-theoretic, and proves the results by example.

Findings − The Johnson tariff-ridden equilibrium may be unique, but not the free-trade equilibrium, and tariff cutting may cause a ‘decision problem under uncertainty’ (d.p.u.u.) of Luce, R.D., Raiffa, H. (1989), in which mutual tariff-cutting benefits both parties only up to some point.

Originality/value − This approach addresses a pragmatic problem with global analysis and suggests institutional rearrangement to avoid such conundrum.

Citation

Wan, H. and Zhou, Y. (2008), "Chapter 2 Trade Liberalization as a Game of Decision Under Uncertainty", Tran-Nam, B., Van Long, N. and Tawada, M. (Ed.) Globalization and Emerging Issues in Trade Theory and Policy (Frontiers of Economics and Globalization, Vol. 5), Emerald Group Publishing Limited, Leeds, pp. 15-28. https://doi.org/10.1016/S1574-8715(08)05002-1