2020/01/08 by Tsotne Kutalia, Kutalia, Tsotne, Revaz Tevzadze +1
Economics, Econometrics and Finance · #60H30 #90A09 #90C39 #Economic theories and models #FOS: Economics and business #Theoretical Economics (econ.TH) #econ.TH #msc:60H30 #msc:90A09 #msc:90C39
paper · pdf · doi:10.48550/arxiv.2001.02426
16 pages, 3 figures
arxiv created 2020/01/08 · openalex publication_date 2020/01/08 · arxiv updated 2020/01/09 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper explores the gain maximization problem of two nations engaging in non-cooperative bilateral trade. Probabilistic model of an exchange of commodities under different price systems is considered. Volume of commodities exchanged determines the demand each nation has over the counter party's currency. However, each nation can manipulate this quantity by imposing a tariff on imported commodities. As long as the gain from trade is determined by the balance between imported and exported commodities, such a scenario results in a two party game where Nash equilibrium tariffs are determined for various foreign currency demand functions and ultimately, the exchange rate based on optimal tariffs is obtained.