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Endowment Effect and Trade Policy Preferences: Evidence from a survey on individuals

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  • TOMIURA Eiichi
  • ITO Banri
  • MUKUNOKI Hiroshi
  • WAKASUGI Ryuhei

Abstract

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.

Suggested Citation

  • TOMIURA Eiichi & ITO Banri & MUKUNOKI Hiroshi & WAKASUGI Ryuhei, 2013. "Endowment Effect and Trade Policy Preferences: Evidence from a survey on individuals," Discussion papers 13009, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:13009
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    File URL: https://www.rieti.go.jp/jp/publications/dp/13e009.pdf
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    References listed on IDEAS

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    1. Hainmueller, Jens & Hiscox, Michael J., 2006. "Learning to Love Globalization: Education and Individual Attitudes Toward International Trade," International Organization, Cambridge University Press, vol. 60(02), pages 469-498, April.
    2. Mayda, Anna Maria & Rodrik, Dani, 2005. "Why are some people (and countries) more protectionist than others?," European Economic Review, Elsevier, vol. 49(6), pages 1393-1430, August.
    3. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
    4. Jonathan Eaton & Gene M. Grossman, 1985. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 258-272, May.
    5. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
    6. Tovar, Patricia, 2009. "The effects of loss aversion on trade policy: Theory and evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 154-167, June.
    7. Scheve, Kenneth F. & Slaughter, Matthew J., 2001. "What determines individual trade-policy preferences?," Journal of International Economics, Elsevier, vol. 54(2), pages 267-292, August.
    8. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    9. Bruce A., Blonigen, 2011. "Revisiting the evidence on trade policy preferences," Journal of International Economics, Elsevier, vol. 85(1), pages 129-135, September.
    10. Caroline Freund & Caglar Ozden, 2008. "Trade Policy and Loss Aversion," American Economic Review, American Economic Association, vol. 98(4), pages 1675-1691, September.
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    Cited by:

    1. TOMIURA Eiichi & ITO Banri & MUKUNOKI Hiroshi & WAKASUGI Ryuhei, 2014. "Reciprocal Versus Unilateral Trade Liberalization: Comparing individual characteristics of supporters," Discussion papers 14067, Research Institute of Economy, Trade and Industry (RIETI).
    2. SHIMAMOTO Daichi & TODO Yasuyuki, 2015. "Economic and Political Networks and Firm Openness: Evidence from Indonesia," Discussion papers 15084, Research Institute of Economy, Trade and Industry (RIETI).

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