Shapley Value and International Trade

Abstract

International trade is modeled as a multinational cooperative game where Shapley value leads to fair distribution of total trade gains. This fair-trade solu tion entails side payments among trading nations, essentially international trade adjustment assistance. These Shapley side payments provide balance to the often contentious free-trade solution, which is essentially open-door and hands-off. We develop requisite calculations and illustrate them with a hypo thetical four-nation trade game. We conclude that Shapley fair-trade estimates and calculations should be an integral part of any international trade negotiation.