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Preference Distortion, Information Cost and Comparative Advantage: A Theoretical Quest to Claim Trade Posture in Post-Pandemic Era

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  • Tonmoy Chatterjee
  • Soumyananda Dinda

Abstract

This study argues that post-pandemic world may not necessarily follow the usual mechanism of trade. In fact, recent pandemic dragged down us to the trajectory of new normalcy. Economic behaviour under new normalcy has changed immensely following several distorted effects, namely preference distortion and information asymmetry. Such distortions change trade posture via gains from trade arguments under comparative advantage. Using the traditional Ricardian model with two countries, two goods and one factor, this study explores the effect of changes in consumer preferences on trade patterns based on comparative advantage and the significance of eliminating information uncertainty. To retain the pre-pandemic gains from such trade this study advocates for consideration of information cost associated with trade basket along with innovation. These results could be important for policymaking at least in post pandemic regime. Sensitivity analysis has also been constructed to capture the extent of changes in trade–autarky profit gaps. This study builds on the verge of economic crisis linking to pandemic and international trade. JEL Codes: C70, D81, F11, L15

Suggested Citation

  • Tonmoy Chatterjee & Soumyananda Dinda, 2022. "Preference Distortion, Information Cost and Comparative Advantage: A Theoretical Quest to Claim Trade Posture in Post-Pandemic Era," Foreign Trade Review, , vol. 57(2), pages 127-147, May.
    • Handle: RePEc:sae:fortra:v:57:y:2022:i:2:p:127-147
    DOI: 10.1177/00157325211060934
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    References listed on IDEAS

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    More about this item

    Keywords

    Pandemic; international trade; preferences; income distribution; information and two-stage game;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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