Trade Policy and Loss Aversion *

@inproceedings{Freund2005TradePA,
  title={Trade Policy and Loss Aversion *},
  author={Caroline Freund and Biron Ca and lar {\"O}zden},
  year={2005}
}
We provide new survey evidence showing that loss aversion and reference dependence are important in shaping people’s preferences over 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… CONTINUE READING
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