DYNAMIC TARIFFS WITH ASYMMETRIC INFORMATION

Recent developments in dynamic game theory are applied to determine when two countries can sustain freer trade given that they determine trade policies non-cooperatively. Countries know their own level of protection, but not the other country's level of protection. Using import trigger strategies, cooperation (in the form of low tariffs) can be supported, although there are periodic reversionary (high tariff) episodes. However, if terms of trade trigger strategies are used, cooperation does not occur. © 1991.