Endogenous coalition formation and free trade agreements

Vi Cao, Haifeng Fu, X. Henry Wang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

This paper studies the endogenous formation of free trade agreements. There are four countries belonging to two types according to market demand and production technology. A unique strong Nash equilibrium exists for the coalition formation game. In equilibrium, two coalition structures may emerge: global free trade, wherein a single coalition encompassing all countries is established, or polarization, characterized by the formation of two symmetric agreements between the same type countries. The specific coalition structure that emerges in equilibrium depends on both the disparity in demand and the gap in unit cost of production between the two types of countries.

Original languageEnglish
Pages (from-to)5781-5810
Number of pages30
JournalManagerial and Decision Economics
Volume45
Issue number8
DOIs
Publication statusPublished - Dec 2024

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