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Strategic agricultural trade policy interdependence and the exchange rate: A game theoretic analysis

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Abstract

Strategic Agricultural Trade Policy Interdependence is modeled using a game theoretic framework. The model distinguishes between the European Community, the United States and a politically passive rest-of-the-world. Particular emphasis is placed on the effect of the exchange rate on the equilibrium outcome of this game. Without compensatory payments to those with the highest political influence, the results suggest that only modest reform is possible. With compensation, liberalization occurs but free trade is not obtained. Simulations also indicate that the U.S. gains incentive to reduce protection given a depreciation of the dollar, while incentive to liberalize trade policies decreases as the dollar appreciates.

Research was supported by Minnesota Agricultural Experiment Station project 14065 “Economic Integration and Disintegration in Europe: Implications for U.S. Agriculture.”

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Authors and Affiliations

  1. Department of Agricultural Economics and Agribusiness, Louisiana State University, 70803-5604, Baton Rouge, LA

    P. Lynn Kennedy

  2. Institut für Agrarpolitik, Marktlehre und Agrarentwicklung, Humboldt University, D-10099, Berlin, Germany

    Harald Von Witzke

  3. Center for International Food and Agricultural Policy and Department of Agricultural and Applied Economics, University of Minnesota, 55108, St. Paul, MN

    Terry L. Roe

Authors
  1. P. Lynn Kennedy
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  2. Harald Von Witzke
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  3. Terry L. Roe
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The authors wish to thank the editor and an anonymous referee for their comments on an earlier version of this paper. Any remaining errors or shortcomings are our sole responsibility.

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Kennedy, P.L., Von Witzke, H. & Roe, T.L. Strategic agricultural trade policy interdependence and the exchange rate: A game theoretic analysis. Public Choice 88, 43–56 (1996). https://doi.org/10.1007/BF00130408

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