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Subgame-perfect free trade networks in a four-country model

Author

Listed:
  • Masaki Iimura

    (Graduate School of Humanities and Social Sciences, University of Tsukuba)

  • Tatsuhiro Shichijo

    (Department of Economics, Osaka Prefecture University)

  • Toru Hokari

    (Faculty of Economics, Keio University)

Abstract

Goyal and Joshi (2006, Int Econ Review) apply the notion of ``pairwise stable networks" introduced by Jackson and Wolinsky (1996, J Econ Theory) to a model of free trade network formation, and show that (i) every pairwise stable network is either complete or almost complete (with all countries except one forming direct links), and (ii) the complete network maximizes global welfare. In this note, we use essentially the same model as their model with four countries, and investigate which network is more likely to be realized than others by considering a dynamic process introduced by Jackson and Watts (2002, J Econ Theory).

Suggested Citation

  • Masaki Iimura & Tatsuhiro Shichijo & Toru Hokari, 2010. "Subgame-perfect free trade networks in a four-country model," Economics Bulletin, AccessEcon, vol. 30(1), pages 650-657.
    • Handle: RePEc:ebl:ecbull:eb-09-00510
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I1-P59.pdf
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    References listed on IDEAS

    as
    1. repec:ebl:ecbull:v:3:y:2007:i:7:p:1-14 is not listed on IDEAS
    2. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    3. Sanjeev Goyal & Sumit Joshi, 2006. "Bilateralism And Free Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, August.
    4. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
    5. Paul Belleflamme & Francis Bloch, 2004. "Market sharing agreements and collusive networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 387-411, May.
    6. Jackson, Matthew O. & Watts, Alison, 2002. "The Evolution of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 106(2), pages 265-295, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    free trade network; network formation; subgame-perfect equilibrium;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • F1 - International Economics - - Trade

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