STRATEGIC AGRICULTURAL TRADE-POLICY INTERDEPENDENCE AND THE EXCHANGE-RATE - A GAME-THEORETIC ANALYSIS

Strategic Agricultural Trade Policy Interdependence is modeled using a game theoretic framework. The model distinguishes between the Europea n Community, the United States and a politically passive rest-of-the-w orld. Particular emphasis is placed on the effect of the exchange rate on the equilibrium outcome of this game. Without compensatory payment s to those with the highest political influence, the results suggest t hat only modest reform is possible. With compensation, liberalization occurs but free trade is not obtained. Simulations also indicate that the U.S. gains incentive to reduce protection given a depreciation of the dollar, while incentive to liberalize trade policies decreases as the dollar appreciates.