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Endogenous enclosure in North‐South trade

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  • Michael Margolis
  • Jason F. Shogren

Abstract

We show that the second‐best case against the optimality of free trade remains valid in the face of a well‐targeted, but costly, policy response. Trade between a North, where property rights can be enforced at relatively low cost, and an otherwise identical South, yields trade patterns and welfare results nearly identical to those previously shown to arise if North and South differ exogenously in the extent of control over resources. Both nations respond optimally to world prices, and the opening of trade leads to the development of property rights in the South. Nonetheless, for a set of world prices bounded by the South's autarky price, the South is better off under autarky and is made worse off by each increase in its export price. On montre que l'optimum de second ordre par rapport à l'optimalité du libre échange reste valide quand on fait face à une stratégie de réponse bien ciblée mais coûteuse. Le commerce entre un Nord où les droits de propriété sont policés à un coût relativement bas, et un Sud identique sauf pour ce qui est de ce facteur, engendre des patterns de commerce et de bien‐être à peu près identiques aux résultats obtenus si Nord et Sud diffèrent de manière exogène dans le contrôle qu’ils ont sur les ressources. Les deux pays répondent optimalement aux prix mondiaux, et l’ouverture du commerce entraîne le développement de droits de propriété dans le Sud. Toutefois, pour un ensemble de prix mondiaux bornés par les prix d’autarcie du Sud, le Sud s’en tire mieux en autarcie, et voit sa situation s’empirer à proportion que son prix à l’exportation s’accroît.

Suggested Citation

  • Michael Margolis & Jason F. Shogren, 2009. "Endogenous enclosure in North‐South trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(3), pages 866-881, August.
  • Handle: RePEc:wly:canjec:v:42:y:2009:i:3:p:866-881
    DOI: 10.1111/j.1540-5982.2009.01530.x
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