We develop a Ricardian market game to show that in non-Walrasian economies, the Law of Comparative Advantage (LCA) à la Ricardo-Haberler (1817; 1936) can fail. Trade is driven, not by comparative advantages, but by strategic behaviour. This leads to a new and somewhat surprising result: it is shown in a Ricardian economy that at equilibrium, by both exporting and importing goods in which they have a comparative disadvantage, countries can Pareto improve on when they specialise as per the LCA, which in turn Pareto dominates autarky.
|Publication status||Published - 19 Nov 2017|
Bibliographical noteThe Economic Bulletin is an open-access letters journal.
- Shapley-Shubik Market Games
- Endogenous commodity-price formation
- Comparative Advantage
- JEL: D5 - General Equilibrium and Disequilibrium: General
- C7 - Game Theory and Bargaining Theory:General