Trade Policy in a Third-Country Model With Kantian Optimization

Abstract

We address the issue of trade policies in a Kantian equilibrium. We find that “in principle” at Kantian equilibrium between the exporting countries, the trade policy is export tax. A Kantian equilibrium between the exporting countries leads to the lowest importing countries' consumer surplus, exporting firms' profits and global welfare, while the social welfare of the exporting countries is the highest. On the contrary, A Kantian equilibrium between the exporting firms leads to the highest importing countries' consumer surplus, exporting firms' profits and global welfare. The stability analysis demonstrates the robustness of our findings within an oligopoly comprising multiple exporters.