Tit-for-Tat, Tariffs, and Time: A Dynamic Model of Trade Policy
International Trade Journal
The objective of this study is to examine the impact of a global protectionist response to a small country's tariff setting behavior. It is assumed that the small country's government seeks to maximize tariff revenues for the purpose of generating funds that can be used to subsidize an interest group in return for its political support. The main result is that if a small country were to seek to raise revenues from a tariff in an environment initially characterized by free trade, while it might be optimal for the country to levy a positive tariff initially, a “tit-for-tat” type response by trading partners would drive tariff levels down over time.
Tit-for-Tat, Tariffs, and Time: A Dynamic Model of Trade Policy” (with François Melese and Johnny Henderson), International Trade Journal 4 (Winter 1989), pp.167–186.