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Asymmetric Information, Bargaining, and Comparative Advantage in Trade Relationships: An Interactive Game

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  • Eric P. Chiang

Abstract

The concept of comparative advantage is a fundamental tool in economics. Yet, it is a concept that new students of economics frequently find challenging to grasp. In this interactive classroom game, I highlight the three essential lessons of comparative advantage: (i) individuals can have a comparative advantage (and thus benefit from specialization) in an activity despite not having an absolute advantage, (ii) the gains from specialization are greatest when individuals have the most heterogeneous skill sets, and (iii) the extent of each individual's share of the gains from specialization is often left to negotiation, with asymmetric information playing an influential role. This classroom game allows each player to possess a unique production function, thus better resembling the diverse pool of potential trade partners that characterizes real life.

Suggested Citation

  • Eric P. Chiang, 2007. "Asymmetric Information, Bargaining, and Comparative Advantage in Trade Relationships: An Interactive Game," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 601-608, October.
    • Handle: RePEc:wly:soecon:v:74:y:2007:i:2:p:601-608
    DOI: 10.1002/j.2325-8012.2007.tb00855.x
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    References listed on IDEAS

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    1. Lisa R. Anderson & Emily Blanchard & Kelly Chaston & Charles Holt & Laura Razzolini & Robert Singleton, 2005. "Production and Gains from Trade," Working Papers 16, Department of Economics, College of William and Mary.
    2. Alberto Isgut & Ganesan Ravishanker & Tanya Rosenblat, 2005. "The Basics of International Trade: A Classroom Experiment," Wesleyan Economics Working Papers 2005-013, Wesleyan University, Department of Economics.
    3. Michael J. Haupert, 1996. "An Experiment in Comparative Advantage," The Journal of Economic Education, Taylor & Francis Journals, vol. 27(1), pages 37-44, January.
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