Symmetry-breaking and trade in neoclassical economies with domestic policies having diminishing effect to production scale

Abstract

PurposeThe aim of this paper is to investigate whether a Nash equilibrium of a two-country trading economy is symmetry-breaking or not.Design/methodology/approachThe approach to tackle this topic is a theoretical treatment by the general equilibrium trade theory and game theory.FindingsIf each government's domestic policy serving private production is diminishing to the private production scale, the Nash equilibrium is not symmetry-breaking.Originality/valueIn the existing study of Chatterjee (2017), a similar result is derived by focusing on the properties of each country's GDP function. The authors, however, consider an economy where each country's PPF is strictly concave and show that the Nash equilibrium uniquely exists and this equilibrium is symmetry.