The Chicken Wars as a Prisoners' Dilemma: What is in a Game?

Abstract

Few events in peacetime galvanize the public's emotions and focus the energy and attention of private and public officials as do trade wars, where states restrict the free flow of goods and services into their economies in order to achieve political or economic objectives. For the public, trade wars, particularly retaliatory trade wars, inspire nationalistic sentiment as people are called upon to sacrifice current consumption in order to discipline an uncooperative trading partner. For the economist, trade wars generally are considered irrational from an aggregate perspective. Such wars have been explained in the rent-seeking literature as mechanisms by which special interest groups (such as trade unions or the auto industry) can obtain wealth transfers from the population at large. Thus, the public's persistent loyalty to their own country's position during most trade wars is mysterious to economists.