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

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Asymmetric Information, Bargaining, and Comparative Advantage in Trade Relationships

 

Southern Economic Journal Vol. 74 No. 2 (October 2007) by Eric Chiang

 

Description of Game

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, three essential lessons of comparative advantage are emphasized: 1) individuals can have a comparative advantage (and thus benefit from specialization) in an activity despite not having an absolute advantage, 2) the gains from specialization are greatest when individuals have the most heterogeneous skill sets, and 3) 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 trade.

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