An adverse social welfare effect of a doubly gainful trade

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Dokumentart: Article
Date: 2018-05-02
Source: University of Tübingen Working Papers in Economics and Finance ; No. 106
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Economics
Other Keywords:
Gains from trade
Increase of incomes
Decrease of income gap
Change of social space
Low relative income
Social welfare
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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.

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