An Infra-marginal Analysis of the Ricardian Model

Wen-Li Chen, Xiaokai Yang and Jeffrey D. Sachs

CID Working Papers from Center for International Development at Harvard University

Abstract: This paper applies the infra-marginal analysis, which is a combination of marginal and total cost-benefit analysis, to the Ricardian model. It demonstrates that the rule of marginal cost pricing does not always hold. It shows that in a 2x2 Ricardian model, there is a unique general equilibrium and that the comparative statics of the equilibrium involve discontinuous jumps -- as transaction efficiency improves, the general equilibrium structure jumps from autarky to partial division of labor and then to complete division of labor. The paper also discusses the effects of tariff in a model where trade regimes are endogenously chosen. It finds that (1) if partial division of labor occurs in equilibrium, the country that produces both goods chooses unilateral protection tariff, and the country producing a single good chooses unilateral laissez faire policy; (2) if complete division of labor occurs in equilibrium, the governments in both countries would prefer a tariff negotiation to a tariff war. Finally, the paper shows that in a model with three countries the country which does not have a comparative advantage relative to the other two countries and/or which has low transaction efficiency may be excluded from trade.

Keywords: Ricardo model; trade policy; division of labor (search for similar items in EconPapers)
JEL-codes: D50 F10 F13 (search for similar items in EconPapers)
Date: 1999-04
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cid.harvard.edu/cidwp/pdf/013.pdf (application/pdf)

Related works:
Chapter: AN INFRAMARGINAL ANALYSIS OF THE RICARDIAN MODEL (2005)
Journal Article: An Inframarginal Analysis of the Ricardian Model (2000)
Working Paper: An Infra-marginal Analysis of the Ricardian Model (1999)
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:wop:cidhav:13

Access Statistics for this paper

More papers in CID Working Papers from Center for International Development at Harvard University Center for International Development at Harvard University (CID). 79 John F. Kennedy Street, Cambridge, MA 02138.. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().