World Integration, Competitive and Bargaining Regimes Switch: an Exploration
AbstractThe purpose of this paper is to study the role of an endogenous switch from a competitive to a bargaining international equilibrium. We consider two trading blocks, which can engage in a free-market determined trade, or a bargaining dictated trade. Bargaining can be called for by either pany, and it may involve a fixed real cost. We propose a framework in order to deal with these issues. We apply such a framework to a symmetric global environment, where the bargaining equilibrium is shown to offer an international diversification of the countryspecific shocks, whereas the competitive equilibrium retains the country specific nature of the shocks. The degree of trade dependency is shown to determine the risk diversification achieved via the bargaining process, the frequency of bargaining, and the volume of trade. An increase in the relative importance of the trade dependent activities is associated with greater international diversification of country-specific shocks, and with a greater frequency of bargaining. We derive the optimal investment -- less costly bargaining will move us towards a comer solution, where trade dependency and local shock diversification are maximized. With positive bargaining costs, we will observe an internal solution with smaller diversification of local shocks. In such an environment the choice of optimal trade dependency balances at the margin the expected diversification against the costs of bargaining.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3103.
Date of creation: Sep 1989
Date of revision:
Note: ITI IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Joshua Aizenman, 1994. "World Integration, Competitive and Bargaining-Regime Switch: An Exploration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(2), pages 458-83, May.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald W. Jones & Douglas D. Purvis, 1981. "International Differences in Response to Common External Shocks: The Role of Purchasing Power Parity," Working Papers 419, Queen's University, Department of Economics.
- Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
- Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
- Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
- Rudiger Dornbusch, 1986.
"External Debt, Budget Deficits and Disequilibrium Exchange Rates,"
NBER Working Papers
1336, National Bureau of Economic Research, Inc.
- R. Dornbusch, 1984. "External Debt, Budget Deficits and Disequilibrium Exchange Rates," Working papers 347, Massachusetts Institute of Technology (MIT), Department of Economics.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.