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An adverse social welfare effect of a doubly gainful trade

Oded Stark, Ewa Zawojska, Wilhelm Kohler and Krzysztof Szczygielski

Journal of Development Economics, 2018, vol. 135, issue C, 77-84

Abstract: Acknowledging individuals' distaste for low relative income renders trade less appealing when trade is viewed as a technology that integrates economies by merging separate social spheres into one. We define a “trembling trade” as a situation in which gains from trade are overtaken by losses of relative income, with the result that global social welfare is reduced. A constructive example reveals that a “trembling trade” can arise even when trade is doubly gainful in that it increases the income of every individual and narrows the income gap between the trading populations.

Keywords: Gains from trade; Increase of incomes; Decrease of income gap; Integration; Change of social space; Low relative income; Social welfare (search for similar items in EconPapers)
JEL-codes: D31 D63 R12 (search for similar items in EconPapers)
Date: 2018
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