An Adverse Social Welfare Effect of a Doubly Gainful Trade

ZEF- Discussion Papers on Development Policy No. 260, Center for Development Research, Bonn, May 2018

33 Pages Posted: 13 Jun 2018

See all articles by Oded Stark

Oded Stark

University of Bonn; University of Warsaw; University of Tuebingen

Ewa Zawojska

University of Warsaw

Wilhelm Kohler

University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Krzysztof Szczygielski

University of Warsaw

Date Written: May 29, 2018

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

JEL Classification: D31, D63, R12

Suggested Citation

Stark, Oded and Zawojska, Ewa and Kohler, Wilhelm K. and Szczygielski, Krzysztof, An Adverse Social Welfare Effect of a Doubly Gainful Trade (May 29, 2018). ZEF- Discussion Papers on Development Policy No. 260, Center for Development Research, Bonn, May 2018, Available at SSRN: https://ssrn.com/abstract=3186455 or http://dx.doi.org/10.2139/ssrn.3186455

Oded Stark (Contact Author)

University of Bonn ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

University of Warsaw ( email )

Dluga Street 44/50
Warsaw, 00-241
Poland

University of Tuebingen

Wilhelmstr. 19
Tuebingen, Baden Wuerttemberg 72074
Germany

Ewa Zawojska

University of Warsaw ( email )

Krakowskie Przedmiescie 26/28
Warszawa, Pl-00681
Poland

Wilhelm K. Kohler

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Krzysztof Szczygielski

University of Warsaw ( email )

Krakowskie Przedmiescie 26/28
Warszawa, Pl-00681
Poland

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