Abstract

This paper provides a model of the transition from hegemonic trade to contemporary (or fair) trade. Hegemonic trade is an instance of the two player game called Bully (Poundstone 1992) and Called Bluff (Snyder and Diesing 1977); contemporary trade is an instance of Prisoner's Dilemma (Krugman and Obstfeld 1991). In this paper, I show that a nation under the thumb of a hegemon, called the conciliatory nation, can induce fair trade. Further, I show that to induce fair trade, the conciliatory nation must not be timied.