Document Type

Working Paper

Publication Date



Center for Law and Economic Studies


Center for Contract and Economic Organization


The U.K.’s decision to exit the E.U. (popularly known as “Brexit”) sets the stage for a potential retaliatory trade war. Similarly, the aggressive nationalism of U.S. President Donald Trump does also. In both cases, game theory suggests how such a conflict might be resolved. This paper first examines three standard game theory models – the Chicken Game, the Prisoner’s Dilemma, and the Stag-Hunt Game – and then turns to the strong incentives for rent-seeking by special interests and considers how rent-seeking likely affects how these games might play out. Although the conventional wisdom expects that the U.K. will suffer retaliation for Brexit, this paper argues that retaliation will produce counter-retaliation in a mutually destructive cycle. Thus, it proposes a strategy to produce a more clearly iterated game and hence increase the potential for cooperation and a compromise aimed at enhancing public welfare, rather than private interests.