Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2007:20: Trilateral Trade and Asset Allocation - extending the Grossman-Hart-Moore model

Eric Rehn ()
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Eric Rehn: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This paper extends the Grossman-Hart-Moore model to suite a specific trilateral trade transaction. In this transaction a downstream producer produces the final good using inputs from two different upstream suppliers. Moreover one of the upstream supplier needs an input from the other upstream supplier for its production. The optimal way to organize this transaction depend on the characteristics of assets, human capital and investments. The general finding is that it is more demanding to find a unique Pareto optimal organization in the trilateral model than in the bilateral Grossman-Hart-Moore model. This paper also produces a number of other potentially useful results.

Keywords: Trilateral Trade; Property Rights; Partial Integration

JEL-codes: D23; L23

36 pages, December 20, 2007

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