Trade Through Endogenous Intermediaries

Weerachart T. Kilenthong
Cheng-Zhong Qin
Publication Type: 
Papers
Journal Name: 
Journal of Mathematical Economics
Journal Volume: 
Forthcoming
Publication Year: 
2014
We propose an intermediation core for an economy that is explicitly speci es in how traders organize themselves into trade cooperatives (intermediaries) and how trade between them gets is carried out. The intermediation core allocations are closely related to the equilibrium allocations of a non-cooperative intermediation game in Townsend (1983). We show that the intermediation core contains all sub-game- perfect equilibrium allocations of the intermediation game, similar to the inclusion of competitive equilibrium allocations in the core usually studied core. We identify intermediation core allocations that are also sub-game-perfect equilibrium allocations of the intermediation game in terms of the supporting intermediary structures. These results help to characterize sub-game- perfect equilibrium allocations of the intermediation game and to analyze their welfare and stability properties.
JEL Codes: 
C71, C72
Country: 
Global
Topic: 
Economic Modeling