A dynamic Nash analysis performed by Kemp et al (2001) defines a set of state variables that
refer to the temporal change in price of a tradeable good in the domestic market. That means that a good
that is produced domestically is price compared to a good that is imported. The same good, but unique in
where it came from. These goods are mapped to the tariff factors that vary with time. Under these
mechanisms the price of the domestic good is mapped to a scaling factor that is based upon the end result
i.e. “playing” one round. The key idea to ensure that the experiment doesn’t map to a series of infinite
repeated games is to state that the history of the tariff factors is limited to a statistical history Kemp et al
(2001). This in essence models a world where trade isn’t free, thus a realistic approach. The end result of
dynamic Nash experiment, which compares the free trade dynamic outcome to an optimized
“feedback-tariff” game shows that there are welfare gains to be had when countries tariff at an optimum
level, Kemp at al (2001) and Graaff (2000). The only issue that arises is the time sensitivity. Since this is
a dynamic model the assumption is that countries can trade and exchange in a meaningful amount of time.
This means that goods are paid for and enter into the market place without too much delay of receipt. This
will become very important in analysis of growth in the regression model. If gains are not realized, then it
is foreseeable that the tariff factors are sub-optimal or that the countries time preferences are violated.