Why do skilled workers or capital-owners in poor countries tend to be pro-trade and those in rich countries not pro-trade enough, when, according to standard distributive models of trade policy preferences, these attitudes counter their economic self-interests vis-a-vis unskilled labor? Existing studies argue non-materialistic priorities like altruism or nationalism, cognitive biases such as framing effects, or lack of "causal knowledge" about the welfare consequences of free trade to address this question. However, these empirical hypotheses remain incompatible alternatives to standard trade theory due to their poor ex ante observability and rich idiosyncrasy at the individual level. This paper offers a theory of trade policy preferences based on ex-ante observable economic quantities, i.e. individual income and distribution of resources in the society, and an assumption of common prior. In a majority-rule trade referendum, common uncertainty about by how much contingent prices will be affected sometimes "flips" the preferences of the median voter counter to the original Heckscher-Ohlin style predictions, even assuming perfect causal knowledge: greater uncertainty encourages support for free trade among owners of the scarce good when that good is imported. This paper thus builds and expands on existing informational arguments about trade policy preferences without resort to individual idiosyncrasies.
PE Research Seminar: In Young Park
Thu, Feb 28, 2019, 12:15 pm