We introduce the possibility of trade in dynamic models with externalities and evaluate the consequences on the capital accumulation process, the market-clearing prices and policy making. We consider mixed economies characterized by a blend of strategic and nonstrategic sectors. An equilibrium exists in the bilateral monopoly game because the strategic planner incorporates the future utility of the country and the presence of a nonstrategic sector in its decision making. Capital externality is one source of interdependence. Equilibrium price, a function of both outputs, is another. Policy coordination is advantageous only when preferences are dissimilar and an externality is present.
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Paper provided by Department of Economics, W. P. Carey School of Business, Arizona State University in its series Working Papers with number
2132841.
Find related papers by JEL classification: C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games D90 - Microeconomics - - Intertemporal Choice and Growth - - - General E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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Datta, Manjira, 1997.
"Externalities and Price Dynamics,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 587-603, August.
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