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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
Puey Ungphakorn
Institute for
Economic Research
Puey Ungphakorn Institute for Economic Research
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Call for Papers: PIER Research Workshop 2025
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Discussion Paperdp
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Year
2025
2024
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2022
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20 February 2024
20241708387200000
No. 216

Trade Theory with Behavioral Agents

Abstract

I develop a theoretical framework to study gains from trade and optimal tariffs in the presence of behavioral biases. I introduce a sufficient statistic, called “behavioral wedge,” that generalizes the model to capture various types of behavioral biases, including utility misperceptions and inattention. First, I explore how behavioral biases influence gains from trade, demonstrating potential welfare losses from trade for behavioral agents. Second, I characterize optimal tariffs and behavioral nudges in the presence of behavioral biases. I show that small open economies can leverage trade policy to mitigate the welfare losses from behavioral biases, whereas larger economies might use nudges to manipulate the world’s terms of trade. Finally, I discuss the role of behavioral biases in shaping public support for the 2018 China–United States trade war and Brexit.

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JEL: D9F1H2
Tags: trade theorybehavioral economicsgains from tradeoptimal tariffsnudges
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Wisarut Suwanprasert
Wisarut Suwanprasert
Middle Tennessee State University

Puey Ungphakorn Institute for Economic Research

273 Samsen Rd, Phra Nakhon, Bangkok 10200

Phone: 0-2283-6066

Email: pier@bot.or.th

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