Constantinos Syropoulos

The size of trading blocs Market power and world welfare effects

Abstract We construct an n -country n -commodity trade model to analyze the implications of bloc size for (Nash) equilibrium tariffs and welfare. The relationship between the absolute size of (symmetric) trading blocs and their market power is ambiguous, and we illustrate how this relationship varies with model parameters. In contrast, sufficiently large increases in the relative size of a bloc enhance its relative market power and cause the welfare of its country members to rise above the free trade level. We establish the existence of an optimal bloc size, and study the dependence of optimal size on the parameters of the model.

A Strategic and Welfare Theoretic Analysis of Free Trade Areas

Abstract We construct a three-country model to determine how the formation of free trade areas (FTAs) affects optimal tariffs and welfare. We find that, at constant rest of the world (ROW) tariffs, the adoption of internal free trade induces union members to reduce their external tariffs below the Kemp–Wan [J. Int. Econom. 6 (1976) 95–97] level, and causes ROWs terms of trade to improve and its welfare to rise. When ROW also behaves optimally, its policy response to the formation of the FTA is to raise tariffs. Generally, FTA members prefer to liberalize internal trade partially and find regional integration appealing only if their collective size is sufficiently large. We also demonstrate how FTAs may undermine the attainment of global free trade.

Deepening of Regional Integration and Multilateral Trade Agreements

We consider a simple three-country, multi-commodity trade model in which two custom union members that have successfully coordinated their external tariff policies are in the process of deepening the integration of their internal markets through the removal of tariffs on intra-union trade. Union and non-union countries cannot sign binding trade agreements. Owing to repeated interactions, however, they can sustain cooperative outcomes with the use of history-dependent strategies. The goal of this paper is to examine how the deepening of integration affects the set of incentive-compatible tariff agreements these parties can support. We derive conditions under which Kemp-Wan (1976) adjustments in the external tariffs of union members are sustainable and we use these adjustments as a frame of reference to evaluate the actual tariff-setting incentives of trading partners. Our analysis reveals that the deepening of integration may enlarge the set of sustainable tariff agreements with the outside country, and that this possibility crucially depends on the degree of substitutability in consumption. We also investigate the effects of integration on sustainable levels of welfare and extend our analysis to consider the effects of political economy factors.

Comparing Bargaining Solutions in the Shadow of Conflict: How Norms against Threats Can Have Real Effects

In many economic environments agents make costly and irreversible investments that may enhance their respective threat payoffs but also shrink the utility possibilities set. In such settings, with variable threats and a variable utility possibilities set, it becomes possible to rank different bargaining solutions in terms of efficiency. We compare bargaining solutions within a class in which the influence of the threat point on the bargaining outcome varies across solutions.

The Distribution of Income in the Presence of Appropriative Activities

The authors examine the distribution of income when agents allocate their initial endowments between production and appropriation (arms investments, influence or rent-seeking activities). Final output depends on the productive contributions of the agents but is divided between them according to their relative contributions in appropriation. Various possible improvements in an agents useful productivity reduce the agents equilibrium share of income, but increases in initial endowments increase an agents share. The authors contrast their results to those that would obtain in the competitive counterpart to their model and discuss its relevance both for history and for the present. The results extend to a class of models where distribution is determined between two groups of agents, with agents within each group behaving non-cooperatively but without exhibiting the free-rider problem. Copyright 1997 by The London School of Economics and Political Science

Endogenous Timing in Games of Commercial Policy

This paper analyzes various equilibria associated with intervention in trade in the context of noncooperative policy games with endogenous timing. It is shown that, while the subgame perfect equilibria in quota games always involve sequential play, that is not necessarily the case in tariff games. One implication of the analysis is that, in contrast to existing theory, trade is not eliminated in quota games. Another implication is that quotas are not necessarily inferior to tariffs. The paper also examines the ways policy leaders and followers differ in their preferences over instruments and allows the choice over instruments to be determined endogenously. This paper analyses various equilibria associated with intervention in trade in the context on non-cooperative policy games with endogenous timing. It is shown that, while the subgame perfect equilibria in quota games always involve sequential play, that is not necessarily the case in tariff games. One implication of the analysis is that, in contrast to existing theory, trade is not eliminated in quota games. Another implication is that quotas are not necessarily inferior to tariffs. The paper also examines the ways policy leaders and followers differ in their preferences over instruments and allows the choice over instruments to be determined endogenously.

Trade Costs and Multimarket Collusion

This paper explores the implications of reciprocal trade liberalization for implicit collusion and welfare in the context of a symmetric, homogeneous goods duopoly model with multi-market contact and quantity competition. One of our principal findings is that collusive conduct does not necessarily entail geographic separation of markets and cessation of intra-industry trade. Our analysis also reveals that, when trade costs and discount factors are not too high, efficient cartel agreements that involve the cross hauling of goods are easier to sustain because they circumscribe deviation incentives. As a consequence, for a certain range of discount factors, welfare is higher when there are no trade costs than when trade costs are so high that they eliminate trade. This establishes an important sense in which trade liberalization is pro-collusive in the neighborhood of unimpeded (i.e., free) trade. In contrast, reductions in trade costs are welfare-improving when they are high enough to eliminate trade flows in the efficient cartel agreement. The analysis examines both tariffs and transport costs and compares their effects on welfare. The model is also extended to consider the presence of more than one firm per country and to study the implications of imperfect substitutability in demand.

On Tariff Preferences and Delegation Decisions in Customs Unions: A Heckscher-Ohlin Approach

This paper studies preferences of customs union (CU) members over common external tariff (CET) levels and extends the literature on delegation decisions over trade policy in models with production. In a model with similar CU members, we prove that most--preferred CETs can be ranked with the help of compensated price elasticities of import demand functions. In the Heckscher--Ohlin trade model, we show these elasticities depend on inter--country differences in relative factor endowments and inter--sectoral differences in technology. This helps identify the optimal policy maker in a CU and demonstrates delegation decisions over trade policy can be integrated into mainstream trade theory. Copyright 2002 Royal Economic Society

Rules for the disposition of tariff revenues and the determination of common external tariffs in customs unions

Abstract This paper is about the determination of common external tariffs (CETs) in customs unions (CUs). We first examine how the relationship between preferences over CET levels, technology and the distribution of factor ownership in a CU is conditioned by the rule that determines the disposition of tariff revenues. We then explore how majority voting at the country level translates these preferences into an equilibrium CET. Among other things, we find that, when revenues are partitioned in proportion to members’ imports, tariff preferences may be polarized, the trade patterns of some CU members may be endogenous, and, as a result, their payoff functions may not be single-peaked. This leads to voting outcomes that dramatically differ from those arising under other sharing rules (e.g., the ‘population’ and ‘consumption’ rules) and raises the possibility of a Condorcet paradox.

Tariffs and Schumpeterian growth

Abstract The paper develops a dynamic multi-country, multi-commodity model of Schumpeterian growth, trade, and tariffs. The presence of a nontraded final good sector generates differences in long-run growth across countries. Furthermore, if the growth intensity of the nontraded good is lower than the growth intensity of traded goods, then the liberalization of trade raises the long-run growth of all trading partners. The paper also analyzes the implications of multilateral, bilateral and unilateral schemes of trade liberalization for long-run growth and welfare.