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Decentralized international exchange


  • Robert Reed
  • Kathleen Trask


We utilize a random-matching model to examine the relationships between market frictions and international trade. In our setting, an individual may choose to search abroad where she may have a cost advantage, but is less likely to meet potential trading partners, owing to higher market frictions. Interestingly, we find that international trade may be associated with lower welfare than autarky. We show how this is due to price distortions resulting from bargaining when there are opportunities for exchange across countries.

Suggested Citation

  • Robert Reed & Kathleen Trask, 2006. "Decentralized international exchange," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 516-543, May.
  • Handle: RePEc:cje:issued:v:39:y:2006:i:2:p:516-543

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    References listed on IDEAS

    1. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
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    7. James Konow, 2003. "Which Is the Fairest One of All? A Positive Analysis of Justice Theories," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1188-1239, December.
    8. Dominique Demougin & Claude Fluet, 2003. "Group vs. Individual Performance Pay When Workers Are Envious," CIRANO Working Papers 2003s-10, CIRANO.
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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness


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