Article(print)1989

NASH EQUILIBRIUM TARIFFS FOR THE UNITED STATES AND CANADA: THE ROLES OF COUNTRY SIZE, SCALE ECONOMICS, AND CAPITAL MOBILITY

In: Journal of political economy, Volume 97, Issue 2, p. 368-586

MICRRUSEN, J.R; EVELE, R.M

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Abstract

A THEORETICAL ANALYSIS OF "OPTIMAL" (NASH EQUILIBRIUM) TARIFF RATES IS PRESENTED. A NUMERICAL GENERAL EQUILIBRIUM MODEL IS THEN USED TO FIND NASH EQUILIBRIUM TARIFF RATES FOR THE UNITED STATES AND CANADA. THE NASH EQUILIBRIUM TARIFFS ARE SMALL RELATIVE TO PARTIAL EQUILIBRIUM ESTIMATES: 18 PERCENT FOR THE UNITED STATES AND 6 PERCENT FOR CANADA. THE UNITED STATES IS ESSENTIALLY INDIFFERENT BETWEEN THE NASH EQUILIBRIUM AND FREE TRADE, WHILE CANADA IS BETTER OFF AT THE LATTER BY $4 BILLION. EMPIRICAL RESULTS SUPPORT THEORETICAL PREDICTIONS THAT THE OPTIMAL TARIFF IS SMALLER WHEN THE COUNTRY IS SMALLER, THERE ARE SCALE ECONOMICS AND FREE ENTRY, AND CAPITAL IS INTERNATIONALLY MOBILE.

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