Should Trade’s ‘Losers’ be Compensated?: An Exploration of the Welfare Economics of the Losses and Costs of Economic Change

Abstract

A commonplace claim about international trade is that it “has losers” – a claim often taken to imply that the case for a policy of free trade rests upon the assumption that trade’s “winners” will compensate its “losers.” In this paper I argue that this claim is mistaken. The mistake, specifically, is to misidentify the payment of costs of participating in the modern competitive economy as the incurrence of losses of property interests or entitlements. At stake is more than semantics. Confusing “costs” with “losses” misleading suggests that compensation for these costs is necessary to make international trade economically efficient and ethically acceptable.

Keywords: trade, welfare

JEL Classification: F1, KO