Optimism, pessimism, and the gains from trade
Peltrault, Frédéric; Blanchard, Michel (2006), Optimism, pessimism, and the gains from trade, Midwest International Economics Group (MWIEG), spring meeting, 2006-05, East Lansing (Michigan), Etats-Unis
TypeCommunication / Conférence
Conference titleMidwest International Economics Group (MWIEG), spring meeting
Conference cityEast Lansing (Michigan)
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Abstract (EN)This paper examines the debate over the gains from trade when international differences in the risk perception of heterogeneous managers provide the basis for trade: the relatively optimistic country exports the risky commodity whereas the relatively pessimistic country exports the certain commodity. We show that optimal trade policy depends on the choice of the welfare criterion, as ex-ante and ex-post criteria often lead to opposing conclusions. The more optimistic country is always better off ex-ante whereas it can end up worse off ex-post. The more pessimistic country may be worse off/better off ex-ante but better off/worse off according to the ex-post welfare criterion.
Subjects / KeywordsHeterogeneity; Trade losses; Ex-ante and ex-post welfare; Idiosyncratic risk; Optimism; Pessimism
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