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Are the antiglobalists right? Gains-from-trade without a walrasian acutioneer

Are the antiglobalists right? Gains-from-trade without a walrasian acutioneer
Are the antiglobalists right? Gains-from-trade without a walrasian acutioneer
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.

globalisation, rational expectations, coordination, common knowledge
0966-4246
712
University of Southampton
Calvo Pardo, H.
07a586f0-48ec-4049-932e-fb9fc575f59f
Calvo Pardo, H.
07a586f0-48ec-4049-932e-fb9fc575f59f

Calvo Pardo, H. (2007) Are the antiglobalists right? Gains-from-trade without a walrasian acutioneer (Discussion Papers in Economics and Econometrics, 712) Southampton. University of Southampton 34pp.

Record type: Monograph (Discussion Paper)

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.

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Published date: 2007
Keywords: globalisation, rational expectations, coordination, common knowledge

Identifiers

Local EPrints ID: 51849
URI: https://eprints.soton.ac.uk/id/eprint/51849
ISSN: 0966-4246
PURE UUID: 94b01a46-c52a-4ac2-9a3f-04e5184d66c1
ORCID for H. Calvo Pardo: ORCID iD orcid.org/0000-0001-6645-4273

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Date deposited: 06 Aug 2008
Last modified: 14 Mar 2019 01:41

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Contributors

Author: H. Calvo Pardo ORCID iD

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