The possibility of an immiserizing transfer under uncertainty

Fries, Timothy

doi:10.1016/s0022-1996(83)80007-5

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Cited by 9 publications

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“…However, he assumes that, in the pre-transfer stationary equilibrium, each country's trade balance, and hence net foreign assets, equal zero, thereby neglecting the income re-transfer effects through interest-rate changes, which we focus on. Fries (1983) gives an example of the transfer paradox in a two-country, two-commodity trade model with production uncertainty. The example is constructed by assuming that equities are not traded internationally.…”

Section: Comparisons With the Literaturementioning

confidence: 99%

Habit Formation And The Transfer Paradox

Gombi

Ikeda

2003

The Japanese Economic Review

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Using a two-country model with habit-forming consumers, we show that the transfer paradox can occur in a free-trade, dynamically stable economy. When the debtor is more in the habit of consuming than the creditor, an income transfer from the creditor to the debtor raises the interest rate in transition through changes in time preference. With sufficiently low elasticities of intertemporal substitution and/or sufficiently large stocks of the creditor's assets, the intertemporal terms-of-trade effect immiserizes the recipient and enriches the donor. This possibility cannot be excluded by the correspondence principle (à la Burmeister and Long) as the dynamics are saddlepoint-stable. JEL Classification Numbers: F00, D90.

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Section: Comparisons With the Literaturementioning

confidence: 99%