IDEAS home Printed from
   My bibliography  Save this paper

Uncertainty, Gains from Specialization and the Welfare State


  • Michele Di Maio

    (Università di Macerata)


This paper presents a specific-factor model showing that, under technological uncertainty and risk averse agents, increasing trade integration is not always welfare increasing. The reason is that changes in the country's specialization level induced by trade integration produce both benefits and cost. Increasing specialization increases wages (efficiency gains), but, modifying the tax scheme of the Welfare State, it also increases income variance. The model identifies a trade-off, absent in the standard deterministic model, between gains from specialization and the higher cost of the Welfare State. It is shown that, depending on the parameter's configuration, it exists a specialization level beyond which aggregate expected income under free trade becomes lower than that achieved under autarky.

Suggested Citation

  • Michele Di Maio, 2006. "Uncertainty, Gains from Specialization and the Welfare State," Working Papers 36-2006, Macerata University, Department of Finance and Economic Sciences, revised Oct 2008.
  • Handle: RePEc:mcr:wpdief:wpaper00036

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 495-526, December.
    2. Andersen, Torben M., 2002. "International Integration, Risk and the Welfare State," IZA Discussion Papers 456, Institute for the Study of Labor (IZA).
    3. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-939, December.
    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. Brainard, William C. & Cooper, Richard N., 1968. "Uncertainty and Diversification in International Trade," Food Research Institute Studies, Stanford University, Food Research Institute, issue 03.
    6. Dani Rodrik, 1997. "Trade, Social Insurance, and the Limits to Globalization," NBER Working Papers 5905, National Bureau of Economic Research, Inc.
    7. Anderson, Torben M, 2002. " International Integration, Risk and the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 343-364, September.
    8. Giampaolo Arachi & Massimo D'Antoni, 2004. "Redistribution as Social Insurance and Capital Market Integration," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(4), pages 531-547, August.
    9. Pagano Ugo & Samuel Bowles, 2003. "Economic Integration, Cultural Standardization,and the Politics of Social Insurance," Working Papers wp64, Political Economy Research Institute, University of Massachusetts at Amherst.
    10. David M. G. Newbery & Joseph E. Stiglitz, 1984. "Pareto Inferior Trade," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 1-12.
    11. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Free Trade; Specialization gains; Welfare State; Uncertainty;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mcr:wpdief:wpaper00036. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Silvana Tartufoli) or () or () or () or (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.