Are the Antiglobalists Right? Gains-from-Trade Without a Walrasian Acutioneer

H Calvo Pardo

Discussion Paper Series In Economics And Econometrics from University of Southampton, Economics Division, School of Social Sciences

Abstract: We show that the 'fear' of globalisation can be rationalised by economic theory in the standard AD/AS equilibrium model, if we substitute the coordinational role of the Auctioneer by an implementation device based on learning (Guesnerie, 1992). When endowing producers with a learning ability to forecast market prices, individual profit-maximizing production decisions become interdependent in a strategic sense (strategic substitutes). Performing basic comparative statics exercises, we show that 'competitiveness' matters in a precise sense: as foreign producers gain access to the home market, home producers' ability to forecast market prices is undermined, so being their ability to forecast the profit consequences of their production decisions. A standard open economy exercise shows that the efficiency gains triggered by increased competition have to be traded off against higher uncertainty (a lower likelihood to coordinate upon the welfare enhancing free-trade equilibrium). We interpret it as a new rationale for the existence of barriers to trade targeting coordination, rather than protecting mere inefficient sectors or industries (political economy driven). Finally, we show that classical measures evaluating ex-ante the desirability of economic integration (net welfare gains) do not always advice free trade.
Keywords; Globalisation, Rational Expectations, Coordination, Common Knowledge
JEL Classification: E32, D84, C62, F15

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