TRADE GAINS: THE END OF THE ROAD?

Abstract

In 1972, the potential gainfulness of free trade was established under fairly general assumptions — essentially those of Arrow and Debreu. Since then, the assumptions have been considerably weakened, notably by accommodating overlapping mortal generations and an infinite horizon. However, there remain several indispensable but implausible assumptions. Two of those assumptions are examined, in a preliminary way, in the present paper: (a) in finite trade models of Arrow–Debreu type, each individual is sufficiently ill-informed or irrational to believe that he/she has no market power; (b) in models of overlapping generations and infinite horizons, there are no intergenerational bequests or gifts inter vivos. Few clear generalizations are found. However, an attempt is made to describe circumstances under which assumptions (a) and (b) can be abandoned.