Trade Policy and Loss Aversion

Caroline Freund () and Caglar Ozden

American Economic Review, 2008, vol. 98, issue 4, 1675-91

Abstract: We develop a political economy model where loss aversion and reference dependence are important in shaping people’s preferences over trade policy. The policy implications of the augmented model differ in three ways: there is a region of compensating protection, where a decline in the world price leads to an offsetting increase in protection, such that a constant domestic price is maintained; protection following a single negative price shock will be persistent; and irrespective of the extent of lobbying, there will be a deviation from free trade that favors loss-making industries. The augmented model explains protections of the US steel industry since 1980. (JEL F13, F14, L61)

JEL-codes: F13 F14 L61 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.4.1675
References: Add references at CitEc
Citations: View citations in EconPapers (56)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.4.1675 (application/pdf)
http://www.aeaweb.org/aer/data/sept08/20041133_data.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:98:y:2008:i:4:p:1675-91

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().