Working Paper No. 477

Trade and Security, I: Anarchy

Published: May 1997Pages: 36Keywords: Trade; Economic EquilibriumJEL-codes: F1; D58

Trade and Security, I: Anarchy James E. Anderson and Douglas Marcouiller, S.J.


Market exchange is subject to an endogenously-determined level of predation which impedes specialization and gains from trade. Utility-maximizing agents opt between careers in specialized production and careers in predation. Three types of equilibria may emerge, autarky (with no predation and no defense), an insecure exchange equilibrium (with predation and defense), or a secure exchange equilibrium (in which defense completely deters predation). We analyze the influence of key parameters on the type of equilibrium which emerges. We also analyze changes in the welfare of groups of agents (the predators and specialized producers in both the richer region and the poorer region) as exogenous shocks occur in the technology of security. Since changes in security have terms of trade effects, some producers may be hurt by enhanced security. We show cases of 'immiserizing security' in which large poor countries are harmed by increased security.

An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

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The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

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