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Trade Liberalization and Self-Control Problems

Author

Listed:
  • Jennifer Abel-Koch

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

Abstract

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.

Suggested Citation

  • Jennifer Abel-Koch, 2011. "Trade Liberalization and Self-Control Problems," Working Papers 1109, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 15 May 2011.
  • Handle: RePEc:jgu:wpaper:1109
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    File URL: http://www.macro.economics.uni-mainz.de/RePEc/pdf/Discussion_Paper_1109.pdf
    File Function: First version, 2011
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    More about this item

    Keywords

    Globalization; welfare gains from trade; self-control problems; timeinconsistency;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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