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Corresponding Author:
Luciano Fanti, Department of Economics and Management, University of Pisa, Italy

Coauthors:
Domenico Buccella, Department of Economics, Kozminski University, Warsaw, Poland

Strategic Trade Policy with Asymmetric Bargaining Agenda

Volume 73 - Issue 2, May 2020
(pp. 257-274)
JEL classification: F16, J51, L13
Keywords: Export Subsidy/Tax, Efficient Bargaining, Right-to-Manage, Cournot Duopoly, Asymmetric Equilibrium

Abstract

This paper challenges the conventional wisdom of the strategic trade policy – in which governments set subsidies for their own exporter firms – under unionisation by considering the realistic difference in the labour market institutions between producing countries, i.e. asymmetric bargaining agenda (Efficient Bargaining, EB, and Right-to Manage, RTM) in rival firms. We show that 1) the government whose firm is EB (resp. RTM) always finds convenient to set an export tax (resp. an export subsidy), regardless of whether the other government intervenes; 2) an asymmetric equilibrium emerges in which only one government intervenes; 3) under appropriate side-payments, governments would find beneficial to coordinate either over mutual intervention or free trade, with the latter ensuring higher welfare levels; 4) the asymmetric equilibrium is preferred by the RTM country because its national social welfare under intervention is always higher than under free trade. These results show that active trade policies in the RTM country partially solve the classical Prisoner’s Dilemma of the trade policy game.

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Institute for International Economics of the Genoa Chamber of Commerce

Institute for International Economics
of the Genoa Chamber of Commerce