Optimism, Pessimism, and the Gains from Trade
AbstractThis paper examines the debate over the gains from trade when international differences in the risk perception of heterogeneous managers provide the basis for trade: the relatively optimistic country exports the risky commodity whereas the relatively pessimistic country exports the certain commodity. We show that optimal trade policy depends on the choice of the welfare criterion, as ex-ante and ex-post criteria often lead to opposing conclusions. The more optimistic country is always better off ex-ante whereas it can end up worse off ex-post. The more pessimistic country may be worse off/better off ex-ante but better off/worse off according to the ex-post welfare criterion.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 6342.
Date of creation: 18 Dec 2007
Date of revision:
Idiosyncratic Risk; Optimism; Pessimism; Heterogeneity; Trade Losses; ex-ante and ex-post welfare;
Find related papers by JEL classification:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
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