Pareto Optimal Trade in an Uncertain World: GMOs and the Precautionary Principle

Posted: 26 Jul 2007

See all articles by Robert G. Chambers

Robert G. Chambers

University of Maryland - Department of Agricultural & Resource Economics

Tigran A. Melkonyan

University of Maryland - Department of Agricultural & Resource Economics

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Abstract

Optimal trade policy in an uncertain world is examined. Decision-maker attitudes toward uncertainty are represented in terms of the Gilboa-Schmeidler (1989) maximin expected-utility (MMEU) model. The central result is that in a two-country, general-equilibrium setting with both trading partners possessing an MMEU preference structure, Pareto optimality can require one trading partner to absorb all uncertainty in the economy if its set of priors is a subset of its trading partners. An immediate corollary is that autarky is Pareto optimal if the trading partner with the more inclusive set of priors either chooses or is endowed with a nonstochastic technology.

Suggested Citation

Chambers, Robert G. and Melkonyan, Tigran, Pareto Optimal Trade in an Uncertain World: GMOs and the Precautionary Principle. American Journal of Agricultural Economics, Vol. 89, No. 2, pp. 520-532, May 2007, Available at SSRN: https://ssrn.com/abstract=1002728 or http://dx.doi.org/10.1111/j.1365-2966.2007.01015.x

Robert G. Chambers (Contact Author)

University of Maryland - Department of Agricultural & Resource Economics ( email )

2200 Symons Hall
College Park, MD 20742-5535
United States
301-405-1266 (Phone)

Tigran Melkonyan

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States

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