The welfare effects of international trade with optimistic and pessimistic managers.

Abstract

This paper investigates the welfare effects of international trade when technological idiosyncratic risk is distorted by optimistic and pessimistic managers. We show that free trade always improves the ex-ante welfare but sometimes lowers the ex-post welfare. Free trade commitment can be regretted ex-post.Optimism; Free trade commitment; Trade losses; Idiosyncratic risk;