A Coalition-Formation Approach to Equilibrium Federations and Trading Blocs.
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.
Year of publication: |
1997
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Authors: | Burbidge, John B. ; DePater, James A. ; Meyers, Gordon M. ; Sengupta, Abhijit |
Published in: |
American Economic Review. - American Economic Association - AEA. - Vol. 87.1997, 5, p. 940-56
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Publisher: |
American Economic Association - AEA |
Saved in:
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