SPECIALIZATION AND TRADE: A GAME THEORETICAL APPROACH

Shuntian Yao and Ke Li ()

Pacific Economic Review, 2006, vol. 11, issue 4, 449-459

Abstract: Abstract. In this paper we consider the problem of specialization and trade for large economies with a continuum of ex ante identical individuals and with a finite number of goods. Different from the classical treatment, we adopt a game theoretical approach. Therefore in our models the prices of traded goods are endogenously formulated according to the bidding strategies of the producer‐consumers. Furthermore, we assume that in the beginning individuals randomly choose their professions. As a result, with a short‐run Nash equilibrium different types of professionals may have different utility levels; while through a dynamic process, a long‐run Nash equilibrium with utility equalization is reached. Besides, we also attempt to provide a new algorithm for the computation of general equilibrium models in the Yang‐Ng framework.

Date: 2006
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