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recordtype oai_dc
spelling okr-10986-141522021-04-23T14:03:21Z Loss Aversion and Trade Policy Freund, Caroline Özden, Çağlar AGENTS AGRICULTURE CAMPAIGN CONTRIBUTIONS CENTRAL BANKS COMPETITIVENESS CONSTANT RETURNS TO SCALE CONSUMER SURPLUS CONSUMERS DEMAND ELASTICITY DEMAND FUNCTIONS ECONOMETRIC MODELS ECONOMICS ELASTICITY EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPLOYMENT ENDOWMENTS EQUILIBRIUM EXCESS DEMAND FIXED COSTS FREE TRADE IMPORTS INCOME INCOME LEVELS INFLATION INSURANCE INSURANCE MARKETS MARGINAL COST MARGINAL VALUE MARKET STRUCTURE NASH EQUILIBRIUM NET IMPORTS OFFSETTING POLICY INSTRUMENTS POLITICAL ECONOMY PRICE CHANGES PRICE DECLINES PRICE FLUCTUATIONS PRICE INCREASES PRODUCERS PRODUCTION TECHNOLOGY PROSPECT THEORY PROTECTIONISM QUOTAS RISK AVERSE RISK AVERSION RISK LOVING RISK SHARING SALES SPREAD SUPPLY FUNCTIONS TRADE BARRIERS TRADE POLICIES UTILITY FUNCTION UTILITY FUNCTIONS UTILITY THEORY VOTERS WELFARE FUNCTION WORLD MARKETS This paper provides 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, we 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. One, 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. Two, protection following a single negative price shock will be persistent. Three, 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 of protection, and in particular, explain why many trade policy instruments are explicitly designed to maintain prices at a given level. 2013-06-24T18:18:59Z 2013-06-24T18:18:59Z 2004-09 http://documents.worldbank.org/curated/en/2004/09/5114379/loss-aversion-trade-policy http://hdl.handle.net/10986/14152 English en_US Policy Research Working Paper;No.3385 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
en_US
topic AGENTS
AGRICULTURE
CAMPAIGN CONTRIBUTIONS
CENTRAL BANKS
COMPETITIVENESS
CONSTANT RETURNS TO SCALE
CONSUMER SURPLUS
CONSUMERS
DEMAND ELASTICITY
DEMAND FUNCTIONS
ECONOMETRIC MODELS
ECONOMICS
ELASTICITY
EMPIRICAL EVIDENCE
EMPIRICAL STUDIES
EMPLOYMENT
ENDOWMENTS
EQUILIBRIUM
EXCESS DEMAND
FIXED COSTS
FREE TRADE
IMPORTS
INCOME
INCOME LEVELS
INFLATION
INSURANCE
INSURANCE MARKETS
MARGINAL COST
MARGINAL VALUE
MARKET STRUCTURE
NASH EQUILIBRIUM
NET IMPORTS
OFFSETTING
POLICY INSTRUMENTS
POLITICAL ECONOMY
PRICE CHANGES
PRICE DECLINES
PRICE FLUCTUATIONS
PRICE INCREASES
PRODUCERS
PRODUCTION TECHNOLOGY
PROSPECT THEORY
PROTECTIONISM
QUOTAS
RISK AVERSE
RISK AVERSION
RISK LOVING
RISK SHARING
SALES
SPREAD
SUPPLY FUNCTIONS
TRADE BARRIERS
TRADE POLICIES
UTILITY FUNCTION
UTILITY FUNCTIONS
UTILITY THEORY
VOTERS
WELFARE FUNCTION
WORLD MARKETS
spellingShingle AGENTS
AGRICULTURE
CAMPAIGN CONTRIBUTIONS
CENTRAL BANKS
COMPETITIVENESS
CONSTANT RETURNS TO SCALE
CONSUMER SURPLUS
CONSUMERS
DEMAND ELASTICITY
DEMAND FUNCTIONS
ECONOMETRIC MODELS
ECONOMICS
ELASTICITY
EMPIRICAL EVIDENCE
EMPIRICAL STUDIES
EMPLOYMENT
ENDOWMENTS
EQUILIBRIUM
EXCESS DEMAND
FIXED COSTS
FREE TRADE
IMPORTS
INCOME
INCOME LEVELS
INFLATION
INSURANCE
INSURANCE MARKETS
MARGINAL COST
MARGINAL VALUE
MARKET STRUCTURE
NASH EQUILIBRIUM
NET IMPORTS
OFFSETTING
POLICY INSTRUMENTS
POLITICAL ECONOMY
PRICE CHANGES
PRICE DECLINES
PRICE FLUCTUATIONS
PRICE INCREASES
PRODUCERS
PRODUCTION TECHNOLOGY
PROSPECT THEORY
PROTECTIONISM
QUOTAS
RISK AVERSE
RISK AVERSION
RISK LOVING
RISK SHARING
SALES
SPREAD
SUPPLY FUNCTIONS
TRADE BARRIERS
TRADE POLICIES
UTILITY FUNCTION
UTILITY FUNCTIONS
UTILITY THEORY
VOTERS
WELFARE FUNCTION
WORLD MARKETS
Freund, Caroline
Özden, Çağlar
Loss Aversion and Trade Policy
relation Policy Research Working Paper;No.3385
description This paper provides 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, we 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. One, 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. Two, protection following a single negative price shock will be persistent. Three, 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 of protection, and in particular, explain why many trade policy instruments are explicitly designed to maintain prices at a given level.
format Publications & Research :: Policy Research Working Paper
author Freund, Caroline
Özden, Çağlar
author_facet Freund, Caroline
Özden, Çağlar
author_sort Freund, Caroline
title Loss Aversion and Trade Policy
title_short Loss Aversion and Trade Policy
title_full Loss Aversion and Trade Policy
title_fullStr Loss Aversion and Trade Policy
title_full_unstemmed Loss Aversion and Trade Policy
title_sort loss aversion and trade policy
publisher World Bank, Washington, D.C.
publishDate 2013
url http://documents.worldbank.org/curated/en/2004/09/5114379/loss-aversion-trade-policy
http://hdl.handle.net/10986/14152
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