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Pareto Optimal Trade in an Uncertain World: GMOs and the Precautionary Principle

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  • Robert G. Chambers
  • Tigran A. Melkonyan

Abstract

Optimal trade policy in an uncertain world is examined. Decision-maker attitudes toward uncertainty are represented in terms of the Gilboa-Schmeidler (1989) maximin expected-utility (MMEU) model. The central result is that in a two-country, general-equilibrium setting with both trading partners possessing an MMEU preference structure, Pareto optimality can require one trading partner to absorb all uncertainty in the economy if its set of priors is a subset of its trading partners. An immediate corollary is that autarky is Pareto optimal if the trading partner with the more inclusive set of priors either chooses or is endowed with a nonstochastic technology. Copyright 2007, Oxford University Press.

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File URL: http://hdl.handle.net/10.1111/j.1365-2966.2007.01015.x
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 89 (2007)
Issue (Month): 2 ()
Pages: 520-532

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Handle: RePEc:oup:ajagec:v:89:y:2007:i:2:p:520-532

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Cited by:
  1. Treich, Nicolas, 2010. "The value of a statistical life under ambiguity aversion," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 15-26, January.

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