SPECIALIZATION AND TRADE: A GAME THEORETICAL APPROACH

Abstract.  In this paper we consider the problem of specialization and trade for large economies with a continuum of ex ante identical individuals and with a finite number of goods. Different from the classical treatment, we adopt a game theoretical approach. Therefore in our models the prices of traded goods are endogenously formulated according to the bidding strategies of the producer-consumers. Furthermore, we assume that in the beginning individuals randomly choose their professions. As a result, with a short-run Nash equilibrium different types of professionals may have different utility levels; while through a dynamic process, a long-run Nash equilibrium with utility equalization is reached. Besides, we also attempt to provide a new algorithm for the computation of general equilibrium models in the Yang-Ng framework.