Multilateral Trade Bargaining and Dominant Strategies

50 Pages Posted: 21 Nov 2016 Last revised: 31 May 2021

See all articles by Kyle Bagwell

Kyle Bagwell

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Robert W. Staiger

Stanford University; University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2016

Abstract

Motivated by GATT bargaining behavior and renegotiation rules, we construct a three-country, two-good general-equilibrium model of trade and examine multilateral tariff bargaining under the constraints of non-discrimination and multilateral reciprocity. We allow for a general family of government preferences and identify bargaining outcomes that can be implemented using dominant strategy proposals for all countries. In the implementation, tariff proposals are followed by multilateral rebalancing, a sequence that is broadly consistent with observed patterns identified by Bagwell, Staiger and Yurukoglu (2016) in the bargaining records for the GATT Torquay Round. The resulting bargaining outcome is efficient relative to government preferences if and only if the initial tariff vectors position the initial world price at its "politically optimal" level. In symmetric settings, if the initial tariffs correspond to Nash tariffs, then the resulting bargaining outcome is efficient and ensures greater-than-Nash trade volumes and welfares for all countries. We also highlight relationships between our work and previous research that examines strategy-proof rationing rules in other economic settings.

Suggested Citation

Bagwell, Kyle and Staiger, Robert W., Multilateral Trade Bargaining and Dominant Strategies (November 2016). NBER Working Paper No. w22842, Available at SSRN: https://ssrn.com/abstract=2873315

Kyle Bagwell (Contact Author)

Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Robert W. Staiger

Stanford University ( email )

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University of Wisconsin - Madison - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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