... a higher aggregate output, which means that gains can be split between both countries. The fundamental problem of exchange has existed since the advantages of trade were discovered. It says that even if there are potential gains from trade, trade may still not occur as the lender will not want to lend without being assured that the borrower will not invest the money in a hopeless venture, or take the money and run. It is very difficult to be sure that the person on the other end of a deal will fulfil their contractual obligation. In short, in the absence of commitment, an exchange will not take place. The arguments against trade, if the other side of the bargain wants the maximum gain for him or herself, can be seen very clearly by using the 'one-sided prisoner's dilemma'. Player I has the choice of either conducting an exchange or not. If no exchange ...

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