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Waseem Toraubally
''Strategic Market Games and Ricardo''
( 2017, Vol. 37 No.4 )
We develop a Ricardian market game to show that in non-Walrasian economies, the Law of Comparative Advantage (LCA) à la Ricardo-Haberler (1817; 1936) can fail. Trade is driven, not by comparative advantages, but by strategic behaviour. This leads to a new and somewhat surprising result: it is shown in a Ricardian economy that at equilibrium, by both exporting and importing goods in which they have a comparative disadvantage, countries can Pareto improve on when they specialise as per the LCA, which in turn Pareto dominates autarky.
Keywords: Shapley-Shubik Market Games, Endogenous commodity-price formation, Comparative Advantage;
JEL: D5 - General Equilibrium and Disequilibrium: General
Manuscript Received : Aug 27 2017 Manuscript Accepted : Nov 19 2017

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