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An adverse social welfare effect of a doubly gainful trade

Oded Stark, Ewa Zawojska, Wilhelm Kohler and Krzysztof Szczygielski

No 106, University of Tuebingen Working Papers in Economics and Finance from University of Tuebingen, Faculty of Economics and Social Sciences

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)
New Economics Papers: this item is included in nep-int
Date: 2018
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