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Trade Liberalization and Self-Control Problems

Listed author(s):
  • Jennifer Abel-Koch


    (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)

This paper analyzes the welfare effects of trade liberalization when some individuals suffer from self-control problems and hence consume too much of goods which generate immediate benefits but entail future costs. Within a classic Ricardian model of trade, the welfare efects depend crucially on the direction of trade. In the importing country, individuals who are suciently price-sensitive and have a sufficiently strong self-control problem lose from trade. In the exporting country, all individuals unambiguously gain from trade. These ndings are however not robust to changes in the assumptions on production technology and market structure. Within a new trade model with increasing returns to scale and monopolistic competition, individuals with self-control problems can lose in both countries. In contrast to the Ricardian setting, even individuals without self-control problems can lose if the average self-control problem is stronger in their country than in the country they start trading with.

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Paper provided by Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz in its series Working Papers with number 1109.

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Length: 36 pages
Date of creation: 15 May 2011
Date of revision: 15 May 2011
Handle: RePEc:jgu:wpaper:1109
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