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Trade Liberalization and Self-Control Problems

Jennifer Abel-Koch ()

No 1109, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

Abstract: This paper analyzes the welfare effects of trade liberalization when some individuals suffer from self-control problems and hence consume too much of goods which generate immediate benefits but entail future costs. Within a classic Ricardian model of trade, the welfare efects depend crucially on the direction of trade. In the importing country, individuals who are sufficiently price-sensitive and have a sufficiently strong self-control problem lose from trade. In the exporting country, all individuals unambiguously gain from trade. These findings are however not robust to changes in the assumptions on production technology and market structure. Within a new trade model with increasing returns to scale and monopolistic competition, individuals with self-control problems can lose in both countries. In contrast to the Ricardian setting, even individuals without self-control problems can lose if the average self-control problem is stronger in their country than in the country they start trading with.

Keywords: Globalization; welfare gains from trade; self-control problems; timeinconsistency (search for similar items in EconPapers)
JEL-codes: D91 F11 F12 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2011-05-15, Revised 2011-05-15
New Economics Papers: this item is included in nep-int
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Downloads: (external link) First version, 2011 (application/pdf)

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