Myopic or farsighted: Bilateral Trade Agreements among three symmetric countries
by TSUBOTA Kenmei and KAWASAKI Yujiro
We examine network formation via bilateral trade agreement (BTA) among three symmetric countries. Each government decides whether to form a link or not via a BTA depending on the differential of ex-post and ex-ante sum of real wages in the country. We model the governmental decision in two forms, myopic and farsighted and analyze the effects on the BTA network formation. First, we find that both
myopic and farsighted games never induce the formation of star networks nor empty networks. Second, the networks resulting from myopic game coincides with those resulting from farsighted games.
Keywords: Endogenous network formation, Bilateral trade agreement, Myopic and farsighted behavior,
JEL classification: F15
Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.