World Trade Policy and the Game Theory - Overcoming the Prisoner's Dilemma?

Table of Contents

• 1. Introduction: Renaissance of protectionist developments
• 1.1 Protectionism – a Jack-in-the-box?
• 1.2 Motivation and objective
• 2. Theoretical approach: A concise overview of game theory
• 2.1 Determinants of decision making: Strategic choices
• 2.2 Typical situations in a 2-player-game: The Prisoner's dilemma
• 2.3 Iterated 2-by-2-bimatrix games and solution possibilities for the Prisoner's dilemma
• 2.3.1 Discovering the cheaters
• 2.3.2 Punishing the cheaters
• 2.3.3 Characteristics of effective punishments
• 2.3.4 An optimal strategy to solve the prisoner's dilemma: Tit for Tat
• 2.3.5 An additional option: Threats and promises
• 2.4 Is the Game Theory an appropriate model to explain decision making in World Trade?
• 2.4.1 Is international trade a non-cooperative game?
• 2.4.2 Payoff structure in the prisoner's dilemma and in international trade
• 2.4.3 International trade as an iterated prisoner's dilemma?
• 3. Linking Theory to the real world: World Trade policy as an Iterative Prisoner's Dilemma
• 3.1 Decision making in World Trade Policy: Who is in charge?
• 3.1.1 Responsible organs in the United States of America
• 3.1.2 Responsible organs in the European Union
• 3.1.3 International Organizations: WTO and GATT
• 3.2 Historic perspective: Development of World Trade in the 20th century
• 3.2.1 The United States of America
• 3.2.2 The European Union
• 3.3 Current developments in World Trade Policy explained
• 3.3.1 The United States of America
• 3.3.2 The European Union
• 3.4 Prospects for future development: Problems and solutions in World Trade Policy
• 3.4.1 Changing the rules of the game
• 3.4.2 Empowerment and increase in effectiveness of the liberal trading system
• 3.4.2.1 National solutions: incorporation of WTO/GATT rules into domestic legislation
• 3.4.2.2 Multilateral approach: reduction of complexity of the WTO dispute settlement system
• 3.4.2.3 Increased independence: an institutional change of the WTO

Objectives and Key Themes

This diploma thesis examines the applicability of game theory, specifically the Prisoner's Dilemma, to model decision-making in world trade policy. The objective is to analyze whether the framework of repeated interactions and strategic choices within the Prisoner's Dilemma can accurately reflect the complexities of international trade negotiations and policy decisions.

• The Prisoner's Dilemma as a model for international trade relations.
• The role of strategic interaction and repeated games in shaping trade policy.
• Analysis of decision-making processes within key international actors (US, EU, WTO).
• Historical development of world trade policy and its implications.
• Potential solutions to overcome protectionist tendencies and promote free trade.

Chapter Summaries

1. Introduction: Renaissance of protectionist developments: This introductory chapter sets the stage for the thesis by highlighting the resurgence of protectionist tendencies in world trade. It establishes the context of the research by emphasizing the growing relevance of understanding decision-making processes in this area, particularly considering the complexities of international cooperation and the potential for conflict inherent in the pursuit of national interests. The chapter motivates the need for a theoretical model to better explain these dynamics and introduces the use of game theory as a potential explanatory framework.

2. Theoretical approach: A concise overview of game theory: This chapter provides a comprehensive overview of game theory principles, focusing specifically on the Prisoner's Dilemma as a model for strategic interactions. It explains the fundamental concepts of game theory, strategic choices, and payoff matrices. The chapter then delves into the mechanics of the Prisoner's Dilemma and explores various solution strategies, such as Tit-for-Tat and the role of threats and promises, all crucial for understanding the dynamics of repeated interactions.

3. Linking Theory to the real world: World Trade policy as an Iterative Prisoner's Dilemma: This central chapter links the theoretical framework of game theory to real-world observations of world trade policy. It examines the decision-making processes within key international actors like the US and the EU, and the role of international organizations such as the WTO and GATT. This involves a detailed historical review of trade policy development and current trends, analyzing the behavior of these actors in terms of cooperative or non-cooperative strategies within a framework analogous to a repeated Prisoner's Dilemma. The chapter analyzes potential solutions, suggesting ways to improve the current system to overcome its inherent limitations.

Keywords

Game theory, Prisoner's Dilemma, world trade policy, protectionism, international cooperation, strategic interaction, WTO, GATT, United States, European Union, Tit-for-Tat, trade negotiations, free trade.

Frequently Asked Questions: A Comprehensive Language Preview

What is the main topic of this document?

This document provides a comprehensive preview of a language analysis, focusing on the application of game theory, specifically the Prisoner's Dilemma, to model decision-making in world trade policy. It examines the resurgence of protectionist tendencies and explores potential solutions to promote free trade.

What are the key themes explored in this language preview?

Key themes include the Prisoner's Dilemma as a model for international trade relations; the role of strategic interaction and repeated games in shaping trade policy; analysis of decision-making processes within key international actors (US, EU, WTO); historical development of world trade policy and its implications; and potential solutions to overcome protectionist tendencies and promote free trade.

What is the structure of the analyzed text?

The text is structured into three main chapters: an introduction outlining the resurgence of protectionism and the need for a theoretical framework; a theoretical section explaining game theory principles and the Prisoner's Dilemma; and a final section linking the theory to real-world world trade policy, focusing on the decision-making processes of key actors and potential solutions.

How does the document use game theory?

The document uses game theory, specifically the Prisoner's Dilemma, as a model to analyze decision-making in international trade. It examines how the principles of strategic interaction and repeated games can explain the complexities of trade negotiations and policy choices made by nations and international organizations.

Which international actors are analyzed?

The analysis focuses on the decision-making processes of key international actors, including the United States of America, the European Union, the World Trade Organization (WTO), and the General Agreement on Tariffs and Trade (GATT).

What historical perspective is provided?

The document offers a historical perspective on the development of world trade policy in the 20th century, examining the evolution of protectionist and free trade policies in the US and the EU, providing context for understanding current trends.

What solutions are proposed to address protectionist tendencies?

The document explores potential solutions to overcome protectionist tendencies and promote free trade. These include changing the rules of the game, empowering and increasing the effectiveness of the liberal trading system (through national solutions like incorporating WTO/GATT rules into domestic legislation, multilateral approaches like reducing the complexity of the WTO dispute settlement system, and increased institutional independence of the WTO).

What are the key terms and concepts used in this analysis?

Key terms and concepts include game theory, Prisoner's Dilemma, world trade policy, protectionism, international cooperation, strategic interaction, WTO, GATT, United States, European Union, Tit-for-Tat, trade negotiations, and free trade.

What is the overall objective of the analysis?

The overall objective is to determine the applicability of game theory, specifically the Prisoner's Dilemma, as a model for understanding and explaining decision-making in world trade policy, focusing on the tensions between national interests and international cooperation.

Where can I find more detailed information on this topic?

This document is a preview; the complete text will provide a more in-depth analysis of the topics discussed here.