Working Paper: CEPR ID: DP7764
Authors: Hans Gersbach; Hans Haller
Abstract: We study the allocation of commodities through a two-stage hierarchy of competitive markets. Groups or countries trade at global prices while individuals within a group trade at local prices. We identify the free trade and the autarky equilibrium as polar cases. We show that no other two-stage market equilibria exist if the commodity space is two-dimensional. An example demonstrates that other, so-called intermediate equilibria exist for three dimensional commodity spaces. We give two existence proofs for intermediate equilibria in higher dimensions. Each proof provides an explicit construction of special classes of intermediate equilibria. Finally, we consider the consequences for welfare and trade flows when some countries control the agency that organizes trade at the global level.
Keywords: Control of trading platforms; Hierarchical trade; Intermediate equilibria
JEL Codes: D43; D50; F10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| dimensionality (C39) | equilibrium existence (C62) |
| three-dimensional commodity space (R33) | intermediate equilibria existence (C62) |
| control of external trade agencies (F13) | trade flows (F10) |
| control of external trade agencies (F13) | welfare outcomes (I38) |
| number of economic groups (F02) | nature of equilibria (D50) |
| characteristics of demand (D12) | nature of equilibria (D50) |