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Endowment Shock and its Welfare Effects in Open Market Economies

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  • Yochanan Shachmurove
  • Uriel Spiegel

Abstract

This paper presents a simple static model of a world economy with two countries, two goods, and two representative agents. Initial endowments are the source of each good. Given that the endowments of the two goods across the two countries are asymmetric, the countries have an incentive to trade. Under certain conditions, it is possible that a onetime increase in a good of one country may be called an endowment shock that reduces the welfare of its trading partner. This endowment shock is the equivalent of manna from heaven.

Suggested Citation

  • Yochanan Shachmurove & Uriel Spiegel, 2006. "Endowment Shock and its Welfare Effects in Open Market Economies," The American Economist, Sage Publications, vol. 50(2), pages 42-46, October.
    • Handle: RePEc:sae:amerec:v:50:y:2006:i:2:p:42-46
    DOI: 10.1177/056943450605000204
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    References listed on IDEAS

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