This paper analyzes the role of retaliation in trade agreements. It shows that, in the presence of private information, retaliation can always be used to increase the welfare derived from such agreements by the participating governments. In particular, it is shown that retaliation is a necessary...

In this paper, we analyze the trade war between two large countries when the trade policy is decided through majority voting. We show how the trade war equilibrium depends on the median voter production factor relative endowment. We compare this equilibrium to the one analyzed by Johnson where...

The purpose on this paper is twofold. First, we present an alternative model of agglomeration and trade that displays the main features of the recent economic geography literature while allowing for the derivation of analytical results by means of simple algebra. Second, we show how this...

Many trade models of monopolistic competition identify cost efficiency as the main determinant of firm performance in export markets. To date, the analysis of demand factors has received much less attention. We propose a new model where consumer preferences are asymmetric across varieties and...

This paper considers the racetrack economic approach, where manufacturing activities are distributed continuously. We seek constant-access equilibria and show that smooth equilibrium distributions are always unstable for almost all transport cost functions, whereas agglomeration in 1 or 2 atomic...

We consider an economic geography model of a new genre: all firms and workers are mobile and their agglomeration within a city generates rising urban costs through competition on a land market. When commuting costs are low (high), the industry tends to be agglomerated (dispersed). With two...

We present a general equilibrium model of monopolistic competition with variable demand elasticities and investigate the impact of free trade on welfare and efficiency. First, contrary to the constant elasticity case, in which all gains from trade are due to increasing product diversity, our...

We develop a model of commodity tax competition with monopolistically competitive internationally mobile firms, transport costs, and asymmetric country sizes. We investigate the impacts of non-cooperative tax setting, as well as of tax harmonization and changes in the tax principle, in both the...

Recent theoretical models predict gains from international trade coming from intra-industry reallocations, due to a firm selection effect. In this paper we answer two related questions. First, what is the magnitude of this selection effect, and how does it compare to that of intra-national...