Modeling a Real Economic Problem

The purpose of this research is to model a real-world economic problem as an extensive-form game. The issue selected is the softwood lumber dispute between Canada and the United States which re-emerged as an economic trade issue between the two countries in early-2002 and which remains in dispute in late-November 2002.

The findings of this research are presented in five topic areas. These topic areas are (1) a statement of the real-world economic problem (this section also includes a justification for investigating the problem), (2) a description of the game in extensive-form (this section also includes considerations of how the game captures elements of the real-world economic problem, and presents complete strategies for each player), (3) a matrix representation of the game in extensive-form, (4) a statement of the Nash equilibria in the game (this section also includes a statement relative to multiple equilibria), and (5) a report of the analysis of an experimental testing of the game.

The softwood lumber issue involves the export by Canada to the United States of lumber produced from the wood harvested from softwood forests in Canada. In Canada, the forests generally are government-owned and timber companies harvest wood under license from provincial governments. In turn, Canadian companies

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d analysis predicts that lumber prices will increase in the short run. This analysis, however, is very narrow and does not take into consideration the impacts of alternative sources of the product or substitutes for the product (Janigan, 2002). In the case of softwood lumber used in the construction of houses, there are few viable substitutes. There is, however, for homebuilders in the United States a reliable alternative source of softwood lumber. The alternative source is Canada. Therefore, while curtailing the harvesting of softwood lumber in the Pacific Northwest did lead to a reduction in the domestically produced supply of softwood lumber in the United States, the action did not lead to an immediate reduction in the overall supply of softwood lumber because lumber suppliers in Canada made up the difference. As a consequence, prices for softwood lumber did not change at once because of the timber harvesting curtailment (Janigan, 2002). The lumber companies in the United States, however, pressured the federal government of the United States to impose import duties on Canadian-produced lumber so that the American lumber companies could raise their prices to restore some of the lost income even with lower levels of timber
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Some common words found in the essay are:
Canada United, Bush Administration, Pacific Northwest, United Canadian, United United, Victory Canada, WTO Canadian, Chips Fly, Canadian American, You've Stumped, softwood lumber, tariffs collected, unlawful tariffs collected, unlawful tariffs, $22 unlawful tariffs, $22 unlawful, softwood lumber dispute, decision set, united canadian, canada opts, united opts, canada united, licensing fees, tariffs collected united, payoffs associated decision,
Approximate Word count = 1941
Approximate Pages = 8 (250 words per page)

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