Stark, Oded Zawojska, Ewa Kohler, Wilhelm Szczygielski, Krzysztof
Year of Publication:
ZEF Discussion Papers on Development Policy No. 260
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.
Gains from trade Increase of incomes Decrease of income gap Integration Change of social space Low relative income Social welfare