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      • Department of Economics
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      A theory of trade concessions

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      Author
      Bac, M.
      Raff, H.
      Date
      1997
      Source Title
      Journal of International Economics
      Print ISSN
      0022-1996
      Electronic ISSN
      1873-0353
      Publisher
      Elsevier BV
      Volume
      42
      Issue
      3-4
      Pages
      483 - 504
      Language
      English
      Type
      Article
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      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. (C) 1997 Elsevier Science B.V.
      Keywords
      Repeated game
      Tariff strategy
      Incomplete information
      Delay
      Permalink
      http://hdl.handle.net/11693/10891
      Published Version (Please cite this version)
      http://dx.doi.org/10.1016/S0022-1996(96)01450-X
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