State Trading Companies, Time Inconsistency, Imperfect Enforceability and Reputation

Tigran A. Melkonian, Stanley R. Johnson
April 1998  [98-WP 192]

Strategic trade in international markets is important for agricultural and other basic commodities. State trading companies (STCs) and large private firms control most of the trade volume. In this study the authors use concepts of modern game theory to treat time inconsistency issues associated with strategic trade. The results are particularly applicable to trade in commodities with lengthy production periods, such as agriculture. The model considered here provides an important context for exploring impacts of signaling, reputation, and third party interventions that approximate the institutions and authorities that govern international trade.

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