Three essays on free trade agreements and R&D collaboration: A network approach

This dissertation consists of three chapters. Chapter 1 and 2 apply network formation theory to the study of free trade agreements, and chapter 3 investigates R&D alliance in a network context.;The objective of the second chapter is to design an extensive form game whose subgame perfect equilibrium can generate the efficient complete network. Given an arbitrary network, proposer is chosen according to a fixed rule of order. The chosen country has options to cut one of her links, or offer a link to another country. We restrict our attention to stationary strategies and construct a stationary subgame perfect equilibrium strategy profile for this infinite-horizon game. It is shown that no matter from which network, the complete global free trade network, as the only efficient configuration, is able to be attained as a SPE outcome.;The third chapter models R&D collaboration networks with asymmetric firms. The main results show that the stable network structure does not maximize the total payoffs. However, such a tension can be eliminated when domestic government is incorporated as a strategic player. The optimal domestic R&D policy is to subsidize domestic R&D cooperation and to levy a tax on international R&D collaboration. Such a discriminating R&D policy affects emerging stable outcomes and removes the tension between stability and efficiency. At the same time, it increases the total welfare as well.;The first chapter considers a setting with n countries. These countries are able to negotiate bilateral free trade agreements (FTAs) to form trading networks. A new solution concept, the pairwise farsightedly stable set, is adopted to predict which free trade network may emerge among forward looking countries. The key finding of this chapter shows that the complete global free trade network is pairwise farsightedly stable. It is also shown that the complete global free trade network is the unique strongly efficient structure, maximizing the total welfare of all countries. However, the complete network is not the uniquely stable one. It coexists with other inefficient stable outcomes. This result motivates the second chapter whose purpose is to provide a non-cooperative support for the efficient complete network.