The Problem of Income Redistribution in Free Trade

This text discusses the issue of income redistribution in the context of free trade. It argues that while free trade can lead to overall economic efficiency, it can also lead to uncompensated losses for some individuals. The text then discusses two arguments that have been made in favor of compensating these losers: the compensation principle and the argument that the losers are simply having their special benefits eliminated. The text concludes by arguing that neither of these arguments is entirely convincing.

Questions

• What is lump-sum redistribution?
• What are the two arguments that have been made in favor of compensating the losers from free trade?
• What are the weaknesses of these two arguments?

Answers

• Lump-sum redistribution is a redistribution of income that takes place after the free trade equilibrium is reached.
• The two arguments that have been made in favor of compensating the losers from free trade are the compensation principle and the argument that the losers are simply having their special benefits eliminated.
• The weaknesses of these two arguments are that it is difficult to identify all of the winners and losers from free trade, and that it is difficult to measure the amount of compensation that is needed.