International Trade Globalization Model: Shapley Value and 'Fair' Pricing

Abstract

In this paper, an original international trade mathematical model is suggested. It studies a possibility of equilibrium on a world market of n countries and m tradable goods, applying linear algebra, linear programming and cooperative game theory (precisely, Shapley value). The model shows that equilibration is improbable if there are more countries than goods and that negative foreign trade balance is not harmful for national economies at equilibrium. Based on the model’s conclusions, some macroeconomic policy recommendations are expressed.

Keywords: mathematical economics, international economics, international trade, cooperative games, linear programming

JEL Classification: C60, C62, C71, F10