A National Prisoner’s Dilemma
The discussion to this point has dealt only with the domestic political economy of trade policy, that is ,the manner in which public officials and domestic interest groups interact in determining a country’s trade policy. But the manner in which public officials interact with their counterparts in other governments also shapes the nature of trade policies. Viewing these interactions in game theoretic terms has proved helpful in understanding certain aspects of international political economy. For example, Brander(1986) employs the structure of the prisoner’ dilemma game to illustrate why countries may end up with protection, even though they would all be better off under free trade. Assuming we can use numbers to represent the net trading benefits perceived by mercantilistically-minded political leaders, suppose two large countries, A and B, each gains 400 (only the relative size of the number are important) if they both follow a free trade policy. However, if one country protects and the other adopts