Chapter 2 Trade Liberalization as a Game of Decision Under Uncertainty

Purpose − This study explains a puzzle: most countries realize the mutual benefit of tariff cutting, but tariffs never become zero. Approach − The method is decision-theoretic, and proves the results by example. Findings − The Johnson tariff-ridden equilibrium may be unique, but not the free-trade equilibrium, and tariff cutting may cause a ‘decision problem under uncertainty’ (d.p.u.u.) of Luce, R.D., Raiffa, H. (1989), in which mutual tariff-cutting benefits both parties only up to some point. Originality/value − This approach addresses a pragmatic problem with global analysis and suggests institutional rearrangement to avoid such conundrum.