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Trade policy, environmental policy, and the sustainability of international cooperation

Tian, Peiying 2022. Trade policy, environmental policy, and the sustainability of international cooperation. PhD Thesis, Cardiff University.
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Abstract

This study analyses trade wars and the sustainability of cooperation under both perfect competition and oligopoly using the game theory approach. In chapter two, a trade policy game under perfect competition between two countries with endowment asymmetries is studied. In a trade war, modelled as the interior Nash equilibrium, the outcome in the symmetric case is that both countries lose, but when asymmetries are allowed, a country may win the trade war. Hence, in an infinitely-repeated game, asymmetries make it difficult to sustain free trade. It is shown that both countries minimaxing each other by setting prohibitive trade taxes is also a Nash equilibrium that results in each country obtaining autarky welfare, and it is easier to sustain free trade using infinite minimax reversion than using infinite Nash reversion. In chapter three, the trade policy game is re-examined under perfect competition among multi countries with a symmetric endowment allocation. All the countries are worse off in the interior Nash equilibrium than under free trade. In an infinitely-repeated game, more countries make it more difficult to sustain free trade using infinite Nash reversion but make it easier using infinite minimax reversion. Since there are two Nash equilibria, free trade can also be sustained in a finitely-repeated game. In chapter four, by allowing for environmental spillovers in a Cournot duopoly model with differentiated products, it is shown that an international environmental agreement under free trade is sustainable in an infinitely-repeated game, provided that the relative environmental damage is not too great. There is a unique Nash equilibrium that results in autarky welfare for both countries if the environmental damage is large enough, in which case more environmental spillover effect makes it easier to sustain cooperation.

Item Type: Thesis (PhD)
Date Type: Completion
Status: Unpublished
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords: : Retaliation, Tariffs, Environmental taxes, Repeated game, Nash-reversion trigger strategies, Minimax-reversion trigger strategies.
Funders: Julian Hodge Bursary
Date of First Compliant Deposit: 6 July 2022
Last Modified: 06 Jul 2022 11:36
URI: https://orca.cardiff.ac.uk/id/eprint/151065

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