An Adverse Social Welfare Effect of a Doubly Gainful Trade

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