A Coalition-Formation Approach to Equilibrium Federations and Trading Blocs

John Burbidge, James A. DePater, Gordon M. Meyers and Abhijit Sengupta
Authors registered in the RePEc Author Service: Gordon M. Myers

American Economic Review, 1997, vol. 87, issue 5, 940-56

Abstract: The authors develop a model in which states may choose to form coalitions to capture efficiency gains from policy coordination. Joining a coalition entails setting the policy variable to maximize the coalition's aggregate payoff at a Nash equilibrium against nonmembers and to commit to a transfer scheme to share the gains. With two states, the unique equilibrium structure is complete federation; with more than two states, incomplete federation can be the unique equilibrium. Interpreting this result in terms of custom unions, the trend to trading-bloc formation may be equilibrium behavior even with cooperation and transfers within customs unions. Copyright 1997 by American Economic Association.

Date: 1997
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Working Paper: A Coalition-formation Approach to Equilibrium Federations and Trading Block s (1996)
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