Taste Asymmetries and Trade Patterns

David Hennessy and Harvey Lapan

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We study trade patterns in a pure exchange economy where preferences are symmetric up to taste intensity parameters. In a 2-person, 2-good endowment economy, then all endowments in a particular Edgeworth box rectangle require trading out of that rectangle. Under strictly quasi-concave preferences, trade will occur away from a larger area of initial endowments. The identified area is larger still when preferences are homothetic and identical up to taste intensity parameters. Implications for the factor price equalization theorem are explored.

Date: 2002-09-20
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Published in Economics Bulletin, June 2003, vol. 4

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