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Externalities and Free Trade Agreements

Author

Listed:
  • Fritz Grafe
  • Ana Mauleon

Abstract

This paper studies the consequences of a private or depletable externality on free trade agreements in a general equilibrium framework. lt is shown that there always exists a stable system of free trade spaces in the world economy. This stable system can result in either non-cooperation, partial cooperation, or total cooperation among countries of different types. The non-cooperation system is Pareto dominated by any other cooperating system. By enforcing a tax policy, a GATT arbitrator is able to implement Pareto superior stable systems in which countries of different type are cooperating.

Suggested Citation

  • Fritz Grafe & Ana Mauleon, 2000. "Externalities and Free Trade Agreements," Annals of Economics and Statistics, GENES, issue 59, pages 63-88.
    • Handle: RePEc:adr:anecst:y:2000:i:59:p:63-88
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    File URL: http://www.jstor.org/stable/20076242
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    Cited by:

    1. Ana Mauleon & Huasheng Song & Vincent Vannetelbosch, 2010. "Networks of Free Trade Agreements among Heterogeneous Countries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 471-500, June.

    More about this item

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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