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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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File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0010/784324/1146.pdf
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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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Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
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Web page: http://www.economics.unimelb.edu.au
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Keywords: Implementation; Maskin monotonicity; pure and mixed Nash equilibrium;

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References

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  1. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.
  2. Sjostrom, T., 1991. "Implementation in Undominated Nash Equilibria without Integer Games," Papers 491, Stockholm - International Economic Studies.
  3. Maskin, Eric & Sjostrom, Tomas, 2001. "Implementation Theory," Working Papers 5-01-1, Pennsylvania State University, Department of Economics.
  4. Marion Oury & Olivier Tercieux, 2009. "Continuous Implementation," Economics Working Papers 0090, Institute for Advanced Study, School of Social Science.
  5. Roberto Serrano & Antonio Cabrales, 2007. "Implemetation In Adaptive Better-Response Dynamics," Working Papers wp2007_0708, CEMFI.
  6. Matsushima, Hitoshi, 1988. "A new approach to the implementation problem," Journal of Economic Theory, Elsevier, vol. 45(1), pages 128-144, June.
  7. Kim-Sau Chung & Jeffrey C. Ely, 2001. "Implementation with Near-Complete Information," Discussion Papers 1332, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Danilov, Vladimir, 1992. "Implementation via Nash Equilibria," Econometrica, Econometric Society, vol. 60(1), pages 43-56, January.
  9. Olivier, BOCHET & François, MANIQUET, 2006. "Virtual Nash implementation with admissible support," Discussion Papers (ECON - Département des Sciences Economiques) 2006043, Université catholique de Louvain, Département des Sciences Economiques.
  10. Aumann, Robert & Brandenburger, Adam, 1995. "Epistemic Conditions for Nash Equilibrium," Econometrica, Econometric Society, vol. 63(5), pages 1161-80, September.
  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. 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.
  13. Dirk Bergemann & Stephen Morris, 2009. "Rationalizable Implementation," Cowles Foundation Discussion Papers 1697, Cowles Foundation for Research in Economics, Yale University.
  14. Eric Maskin, 1998. "Nash Equilibrium and Welfare Optimality," Harvard Institute of Economic Research Working Papers 1829, Harvard - Institute of Economic Research.
  15. Hannu Vartiainen, 2007. "Subgame perfect implementation of voting rules via randomized mechanisms," Social Choice and Welfare, Springer, vol. 29(3), pages 353-367, October.
  16. M. Sanver, 2006. "Nash implementing non-monotonic social choice rules by awards," Economic Theory, Springer, vol. 28(2), pages 453-460, 06.
  17. Saijo, Tatsuyoshi, 1987. "On constant maskin monotonic social choice functions," Journal of Economic Theory, Elsevier, vol. 42(2), pages 382-386, August.
  18. Moore, John & Repullo, Rafael, 1990. "Nash Implementation: A Full Characterization," Econometrica, Econometric Society, vol. 58(5), pages 1083-99, September.
  19. Abreu, Dilip & Matsushima, Hitoshi, 1992. "Virtual Implementation in Iteratively Undominated Strategies: Complete Information," Econometrica, Econometric Society, vol. 60(5), pages 993-1008, September.
  20. 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.
  21. Olivier Bochet, 2007. "Nash Implementation with Lottery Mechanisms," Social Choice and Welfare, Springer, vol. 28(1), pages 111-125, January.
  22. Jackson, Matthew O., 1999. "A Crash Course in Implementation Theory," Working Papers 1076, California Institute of Technology, Division of the Humanities and Social Sciences.
  23. Jackson, Matthew O, 1991. "Bayesian Implementation," Econometrica, Econometric Society, vol. 59(2), pages 461-77, March.
  24. Abreu, Dilip & Sen, Arunava, 1991. "Virtual Implementation in Nash Equilibrium," Econometrica, Econometric Society, vol. 59(4), pages 997-1021, July.
  25. 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.
  26. Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
  27. Palfrey, Thomas R & Srivastava, Sanjay, 1991. "Nash Implementation Using Undominated Strategies," Econometrica, Econometric Society, vol. 59(2), pages 479-501, March.
  28. Gibbard, Allan, 1977. "Manipulation of Schemes That Mix Voting with Chance," Econometrica, Econometric Society, vol. 45(3), pages 665-81, April.
  29. 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.
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Cited by:
  1. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.
  2. Dirk Bergemann & Stephen Morris, 2009. "Rationalizable Implementation," Cowles Foundation Discussion Papers 1697, Cowles Foundation for Research in Economics, Yale University.
  3. Renou, Ludovic & Schlag, Karl H., 2011. "Implementation in minimax regret equilibrium," Games and Economic Behavior, Elsevier, vol. 71(2), pages 527-533, March.

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