Why Do Economists Favor Free Trade but Politicians Don''t (original) (raw)

Abstract

In summary, Pareto would have the Ministry of Production choose a s = a * s , compensate those who would otherwise be harmed by the choice and later consider how the residual might best be distributed. Kemp and Pezanis-Christou (1999) Economic theorists traditionally banish discussions of information to footnotes. Serious consideration of costs of communication, imperfect knowledge, and the like would, it is believed, complicate without informing. This paper, which analyses competitive markets in which the characteristics of the commodities exchanged are not fully known to at least one of the parties to the transaction, suggests that this comforting myth is false. Some of the most important conclusions of economic theory are not robust to considerations of imperfect information. Rothschild and Stiglitz (1976, p. 629) Agreement on the virtues of free trade as a means to advance the economic welfare of society is a well-known exception to economists' disagreements with one another on other matters of policy. Politicians, and the population at large, seem united in their opposition to free trade in most lands and times. Economists attribute the attitude of politicians to a lack of vision, wisdom, and leadership, while politicians dismiss the free trade arguments as simply academic-a euphemism for irrelevant. In spite of much debate, the arguments have changed little in the two centuries since Torrens and Ricardo proposed the theory of comparative advantage. In this paper we propose to perturb this stasis by recognizing that serious economic obstacles exist in realizing the net gains from trade liberalization. Gains and losses of various agents and groups are unevenly distributed among them, and the information about their magnitude is inherently private. Such information is not truthfully

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