Optimism, Pessimism, and the Gains from Trade

Michel Blanchard () and Frederic Blanchard
Authors registered in the RePEc Author Service: Frederic Peltrault ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Idiosyncratic Risk; Optimism; Pessimism; Heterogeneity; Trade Losses; ex-ante and ex-post welfare (search for similar items in EconPapers)
JEL-codes: D81 F11 F13 (search for similar items in EconPapers)
Date: 2007-12-18
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:6342

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