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Pareto Optimal Trade in an Uncertain World: GMOs and the Precautionary Principle
Author(s) -
Chambers Robert G.,
Melkonyan Tigran A.
Publication year - 2007
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1365-2966.2007.01015.x
Subject(s) - autarky , corollary , economics , knightian uncertainty , pareto principle , minimax , expected utility hypothesis , pareto optimal , mathematical economics , prior probability , preference , microeconomics , set (abstract data type) , precautionary principle , bayesian probability , mathematics , computer science , operations management , ambiguity , statistics , pure mathematics , market economy , welfare , programming language , ecology , biology
Optimal trade policy in an uncertain world is examined. Decision‐maker attitudes toward uncertainty are represented in terms of the Gilboa‐Schmeidler (1989) maximin expected‐utility (MMEU) model. The central result is that in a two‐country, general‐equilibrium setting with both trading partners possessing an MMEU preference structure, Pareto optimality can require one trading partner to absorb all uncertainty in the economy if its set of priors is a subset of its trading partners. An immediate corollary is that autarky is Pareto optimal if the trading partner with the more inclusive set of priors either chooses or is endowed with a nonstochastic technology.