An adverse social welfare effect of a doubly gainful trade

Oded Stark*, Ewa Zawojska, Wilhelm Kohler, Krzysztof Szczygielski

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Pages (from-to)77-84
Number of pages8
JournalJournal of Development Economics
Volume135
DOIs
StatePublished - Nov 2018
Externally publishedYes

Keywords

  • Change of social space
  • Decrease of income gap
  • Gains from trade
  • Increase of incomes
  • Integration
  • Low relative income
  • Social welfare

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