Nash Equilibrium Tariffs in a Dynamic Stochastic Game: An Application to US and EC Strategic Decisions

Polley making involves dynamics, uncertainty, and strategy, which (although they overlap) can be regarded as separate aspects of the decision maker's problem. Analyzing equilibrium pohc1es (when all considerations are present) and determining how the equilibrium is altered (when one or more aspects ts ignored) are made possible by having an analytical tool that nests dynamics, uncertainty, and strategy and pernuts them to be included in the model in any combination. A tractable dynamic stochastic game (which is such a tool) 1s discussed, and its merits are mdtcated by means of an example of strategic tanff and tax pohc1es involving the USA and European Community.