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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

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Peltrault_MPRA_paper_6342.pdf (239.8Kb)
Type
Communication / Conférence
Date
2006
Conference title
Midwest International Economics Group (MWIEG), spring meeting
Conference date
2006-05
Conference city
East Lansing (Michigan)
Conference country
Etats-Unis
Pages
36
Metadata
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Author(s)
Peltrault, Frédéric
Blanchard, Michel
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 / Keywords
Heterogeneity; Trade losses; Ex-ante and ex-post welfare; Idiosyncratic risk; Optimism; Pessimism
JEL
F11 - Neoclassical Models of Trade
F13 - Trade Policy; International Trade Organizations
D81 - Criteria for Decision-Making under Risk and Uncertainty

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