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This paper examines the debate over the gains from trade when international differencesin the risk perception of heterogeneous managers provide the basis for trade: the relativelyoptimistic country exports the risky commodity whereas the relatively pessimistic countryexports the certain commodity. We show that optimal trade policy depends on the choice ofthe welfare criterion, as ex-ante and ex-post criteria often lead to opposing conclusions. Themore optimistic country is always better off ex-ante whereas it can end up worse off ex-post.The more pessimistic country may be worse off-better off ex-ante but better off-worse offaccording to the ex-post welfare criterion.

Item Type: MPRA Paper -

Original Title: Optimism, Pessimism, and the Gains from Trade-

Language: English-

Keywords: Idiosyncratic Risk, Optimism, Pessimism, Heterogeneity, Trade Losses, ex-ante and ex-post welfare-

Subjects: F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade OrganizationsD - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and UncertaintyF - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade-

Author: Blanchard, Michel

Source: https://mpra.ub.uni-muenchen.de/6342/

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