Welfare–Balanced International Trade Agreements

In this work, we consider a classic international trade model with two countries and one firm in each country. The game has stages: the first stage, governments of country use their welfare functions to choose tariffs either: (a) competitively (Nash equilibrium) or (b) cooperatively (social optimum); second firms (Nash) home export quantities under Cournot-type competition conditions. previous publication compared competitive cooperative showed that is following types: (i) prisoner’s dilemma (when outcome dominated by outcome); (ii) lose–win (an asymmetric situation where only damaged outcome, whereas other benefited). both scenarios, aggregate larger than welfare. lack coincidence main difficulties calling for establishment agreements. propose welfare-balanced agreement where: implement so increase from outcome; they redistribute according relative shares. We analyse impact such shares relevant economic as firm’s profits, consumer surplus, custom revenue. This analysis allows add conditions mitigate effects high changes these Finally, introduce index measuring gains countries. general, observe when are higher, also exhibit higher changes. Hence, demand additional caution construction safeguard interests