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Implementation in Mixed Nash Equilibrium

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  • Claudio Mezzetti & Ludovic Renou

Abstract

We study the gains from trade in a model with endogenously variable markups. We show that the pro-competitive gains from trade are large if the economy is characterized by (i) extensive misallocation, i.e., large ineciencies associated with markups, and (ii) a weak pattern of cross-country comparative advantage in individual sectors. We and strong evidence for both of these ingredients using producer-level data for Taiwanese manufacturing establishments. Parameterizations of the model consistent with this data thus predict large pro-competitive gains from trade, much larger than those in standard Ricardian models. In stark contrast to standard Ricardian models, data on changes in trade volume are not sucient for determining the gains from trade.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1146.

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Length: 23 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:mlb:wpaper:1146

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Keywords: Implementation; Maskin monotonicity; pure and mixed Nash equilibrium;

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References

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  1. Kim-Sau Chung & Jeffrey C. Ely, 2003. "Implementation with Near-Complete Information," Econometrica, Econometric Society, vol. 71(3), pages 857-871, 05.
  2. Olivier Bochet, 2007. "Nash Implementation with Lottery Mechanisms," Social Choice and Welfare, Springer, vol. 28(1), pages 111-125, January.
  3. Saijo, Tatsuyoshi, 1987. "On constant maskin monotonic social choice functions," Journal of Economic Theory, Elsevier, vol. 42(2), pages 382-386, August.
  4. Dirk Bergemann & Stephen Morris, 2009. "Rationalizable Implementation," Cowles Foundation Discussion Papers 1697, Cowles Foundation for Research in Economics, Yale University.
  5. Hannu Vartiainen, 2007. "Subgame perfect implementation of voting rules via randomized mechanisms," Social Choice and Welfare, Springer, vol. 29(3), pages 353-367, October.
  6. Roberto Serrano & Rajiv Vohra, 2009. "Multiplicity Of Mixed Equilibria In Mechanisms: A Unified Approach To Exact And Approximate Implementation," Working Papers wp2009_0908, CEMFI.
  7. Matsushima, Hitoshi, 1988. "A new approach to the implementation problem," Journal of Economic Theory, Elsevier, vol. 45(1), pages 128-144, June.
  8. Aumann, Robert & Brandenburger, Adam, 1995. "Epistemic Conditions for Nash Equilibrium," Econometrica, Econometric Society, vol. 63(5), pages 1161-80, September.
  9. Abreu, Dilip & Matsushima, Hitoshi, 1992. "Virtual Implementation in Iteratively Undominated Strategies: Complete Information," Econometrica, Econometric Society, vol. 60(5), pages 993-1008, September.
  10. Bochet, Olivier & Maniquet, François, 2010. "Virtual Nash implementation with admissible support," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 99-108, January.
  11. Barbera, S & Bogomolnaia, A & van der Stel, H, 1996. "Strategy-Proof Probabilistic Rules for Expected Utility Maximizers," UFAE and IAE Working Papers 330.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  12. Roberto Serrano & Antonio Cabrales, 2007. "Implementation in Adaptive Better-Response Dynamics," Working Papers 2007-10, Brown University, Department of Economics.
  13. Sjostrom, T., 1991. "Implementation in Undominated Nash Equilibria without Integer Games," Papers 491, Stockholm - International Economic Studies.
  14. Abreu, Dilip & Matsushima, Hitoshi, 1992. "A Response [Virtual Implementation in Iteratively Undominated Strategies I: Complete Information]," Econometrica, Econometric Society, vol. 60(6), pages 1439-42, November.
  15. Benoît, Jean-Pierre & Ok, Efe A., 2008. "Nash implementation without no-veto power," Games and Economic Behavior, Elsevier, vol. 64(1), pages 51-67, September.
  16. Matthew O. Jackson, 2001. "A crash course in implementation theory," Social Choice and Welfare, Springer, vol. 18(4), pages 655-708.
  17. Eric Maskin, 1998. "Nash Equilibrium and Welfare Optimality," Harvard Institute of Economic Research Working Papers 1829, Harvard - Institute of Economic Research.
  18. Jackson, Matthew O, 1991. "Bayesian Implementation," Econometrica, Econometric Society, vol. 59(2), pages 461-77, March.
  19. Marion Oury & Olivier Tercieux, 2012. "Continuous Implementation," Econometrica, Econometric Society, vol. 80(4), pages 1605-1637, 07.
  20. Dutta, Bhaskar & Sen, Arunava, 1991. "A Necessary and Sufficient Condition for Two-Person Nash Implementation," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 121-28, January.
  21. Danilov, Vladimir, 1992. "Implementation via Nash Equilibria," Econometrica, Econometric Society, vol. 60(1), pages 43-56, January.
  22. Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
  23. Maskin, Eric & Sjostrom, Tomas, 2001. "Implementation Theory," Working Papers 5-01-1, Pennsylvania State University, Department of Economics.
  24. Gibbard, Allan, 1977. "Manipulation of Schemes That Mix Voting with Chance," Econometrica, Econometric Society, vol. 45(3), pages 665-81, April.
  25. Cabrales, Antonio & Serrano, Roberto, 2011. "Implementation in adaptive better-response dynamics: Towards a general theory of bounded rationality in mechanisms," Games and Economic Behavior, Elsevier, vol. 73(2), pages 360-374.
  26. Palfrey, Thomas R & Srivastava, Sanjay, 1991. "Nash Implementation Using Undominated Strategies," Econometrica, Econometric Society, vol. 59(2), pages 479-501, March.
  27. Moore, John & Repullo, Rafael, 1990. "Nash Implementation: A Full Characterization," Econometrica, Econometric Society, vol. 58(5), pages 1083-99, September.
  28. Abreu, Dilip & Sen, Arunava, 1991. "Virtual Implementation in Nash Equilibrium," Econometrica, Econometric Society, vol. 59(4), pages 997-1021, July.
  29. M. Sanver, 2006. "Nash implementing non-monotonic social choice rules by awards," Economic Theory, Springer, vol. 28(2), pages 453-460, 06.
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Cited by:
  1. Renou, Ludovic & Schlag, Karl H., 2011. "Implementation in minimax regret equilibrium," Games and Economic Behavior, Elsevier, vol. 71(2), pages 527-533, March.
  2. Roberto Serrano & Rajiv Vohra, 2009. "Multiplicity Of Mixed Equilibria In Mechanisms: A Unified Approach To Exact And Approximate Implementation," Working Papers wp2009_0908, CEMFI.
  3. Bergemann, Dirk & Morris, Stephen & Tercieux, Olivier, 2011. "Rationalizable implementation," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1253-1274, May.

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