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Abstract

This paper derives sufficient conditions under which the Law of Comparative Advantage and the General Law of Comparative Advantage are true when the preferences of the trading countries may not be represented by "well-behaved'' social utility functions. It shows that in the neoclassical framework with convex technologies, profit maximization and Walras's Law, the laws of comparative advantage under a natural trade are still valid if either the Law of Demand or the Weak Axiom of Revealed Preference holds, or if losers are compensated using lump-sum transfers or consumption taxes.


Comments on this paper are most welcome. Please send them to karyiu@u.washington.edu.