Loss aversion and trade policy /
Freund, Caroline L.
Loss aversion and trade policy / Caroline Freund and Caglar, Ozden. - Washington, D.C : World Bank, 2004. - 35p ; 27 cm. - Policy research working papers ; no. 3385 .
Also available online. "Freund and Ozden provide new survey evidence showing that loss aversion and reference dependence are important in shaping people's perception of trade policy. Under the assumption that agents' welfare functions exhibit these behavioral elements, they analyze a model with a welfare-maximizing government and with the lobbying framework of Grossman and Helpman (1994). The policy implications of the augmented models differ in three important ways: There is a region of compensating protection, where a decline in the World price leads to an offsetting increase in protection, such that a constant domestic price is maintained; Protection following a single negative price shock will be persistent; Irrespective of the extent of lobbying, there will be a deviation from free trade that tends to favor loss-making industries. The augmented models are more consistent with the observed structure o
Includes bibliographical references.
Open access.
Commercial policy.
Loss aversion and trade policy / Caroline Freund and Caglar, Ozden. - Washington, D.C : World Bank, 2004. - 35p ; 27 cm. - Policy research working papers ; no. 3385 .
Also available online. "Freund and Ozden provide new survey evidence showing that loss aversion and reference dependence are important in shaping people's perception of trade policy. Under the assumption that agents' welfare functions exhibit these behavioral elements, they analyze a model with a welfare-maximizing government and with the lobbying framework of Grossman and Helpman (1994). The policy implications of the augmented models differ in three important ways: There is a region of compensating protection, where a decline in the World price leads to an offsetting increase in protection, such that a constant domestic price is maintained; Protection following a single negative price shock will be persistent; Irrespective of the extent of lobbying, there will be a deviation from free trade that tends to favor loss-making industries. The augmented models are more consistent with the observed structure o
Includes bibliographical references.
Open access.
Commercial policy.