Dynamic Tariffs with Asymmetric Information

Recent work in game theory has demonstrated how cooperative outcomes can be sustained when the game is played repeatedly, defectors are punished, but agents play non-cooperatively. This methodology is applied here to determine when two countries can sustain freer trade given that they determine trade policies non-cooperatively. We focus on the role of asymmetric information. Countries have private information about the extent of their own protection, but the overall level of protection can be thought of as private information. Therefore, any agreement to eliminate or reduce tariffs is limited by the fact that countries can cheat on the agreement by using non-observable forms of protection. Using import trigger strategies, cooperation (in the form of low tariffs) can be supported. There a.re periodic reversionary (high tariff) episodes which necessarily occur. They are not the result of mistakes, attempted manipulation, or misperception. Neither country cheats on the low tariff agreement, but reversions to high tariffs are triggered by the random variable. In section V we examine a slightly different trigger strategy. Countries' strategies are based on their observations of the terms of trade. This alteration changes the results and in this case cooperation does not occur

Initial Versus Continuing Proposal Power in Legislative Seniority

We compare two different seniority systems in a legislature whose sole task is to decide on distributive issues, and which operates under a Baron-Ferejohn recognition rule, where recognition probability is based on seniority. In the first system, called "initial proposal power", recognition probability for the initial proposal is based on seniority, but once the proposal is voted on by the legislature, all members have equal recognition probabilities for any reconsideration. Under the second system, called "continuing proposal power,'' seniority is used to determine proposal power both in the initial consideration and in any reconsideration. We find that in the case of seniority systems embodying continuing proposal power, there does not exist an equilibrium in which incumbents are reelected, and in which legislators would endogenously choose to impose such a seniority system on themselves. This contrasts with previous results in which we have shown that there does exist such an equilibrium for the case of initial proposal power. The reason for this result is that continuing proposal power lowers the value of senior members, since it makes them less desirable as coalition partners

Worldwide Persistence, Business Cycles, and Economic Growth

We study the time series properties of aggregate data drawn from the Penn World Tables using numerical Bayesian procedures which facilitate inference with small samples. We find substantial persistence in world aggregates, and some evidence for a world business cycle. Across economies, there is great dispersion in our measure of persistence of shocks to real gross domestic product. That we also find no evidence of a relationship between growth and persistence sheds light on which of two competing models of endogenous growth is likely to be able to explain the PWT data

Dynamic Tariffs with Asymmetric Information

Recent work in game theory has demonstrated how cooperative outcomes can be sustained when the game is played repeatedly, defectors are punished, but agents play non-cooperatively. This methodology is applied here to determine when two countries can sustain freer trade given that they determine trade policies non-cooperatively. We focus on the role of asymmetric information. Countries have private information about the extent of their own protection, but the overall level of protection can be thought of as private information. Therefore, any agreement to eliminate or reduce tariffs is limited by the fact that countries can cheat on the agreement by using non-observable forms of protection. Using import trigger strategies, cooperation (in the form of low tariffs) can be supported. There a.re periodic reversionary (high tariff) episodes which necessarily occur. They are not the result of mistakes, attempted manipulation, or misperception. Neither country cheats on the low tariff agreement, but reversions to high tariffs are triggered by the random variable. In section V we examine a slightly different trigger strategy. Countries' strategies are based on their observations of the terms of trade. This alteration changes the results and in this case cooperation does not occur

Worldwide Persistence, Business Cycles, and Economic Growth

We study the time series properties of aggregate data drawn from the Penn World Tables using numerical Bayesian procedures which facilitate inference with small samples. We find substantial persistence in world aggregates, and some evidence for a world business cycle. Across economies, there is great dispersion in our measure of persistence of shocks to real gross domestic product. That we also find no evidence of a relationship between growth and persistence sheds light on which of two competing models of endogenous growth is likely to be able to explain the PWT data

An Experimental Investigation of the Patterns of International Trade

This study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system. The concept of multiple "countries" in which each country has its own technology, preferences and resource endowments, is introduced and operationalized. The questions posed in the study are related to the law of comparative advantage, factor price equalization, terms of trade, efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions. The study builds on previous work in the experimental study of general equilibrium phenomena

An Experimental Investigation of the Patterns of International Trade

This study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system. The concept of multiple "countries" in which each country has its own technology, preferences and resource endowments, is introduced and operationalized. The questions posed in the study are related to the law of comparative advantage, factor price equalization, terms of trade, efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions. The study builds on previous work in the experimental study of general equilibrium phenomena