Endowment Effect and Trade Policy Preferences: Evidence from a survey on individuals
The endowment effect, established by behavioral economics, is regarded as a cause of inertia. This paper examines its effects on trade policy preferences of 10,000 individuals in Japan. People strongly influenced by the endowment effect are significantly more likely to oppose import liberalization even after controlling for the individual's characteristics including his/her risk aversion. This suggests that income compensation and insurance schemes are insufficient for expanding political support for free trade. We also confirm the significant effects of industry, occupation, income, gender, and education. Retired people tend to support import liberalization, possibly as consumers rather than producers/workers.
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