Reference : Ethnocentric preferences and the environment with international trade
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Business & economic sciences : Social economics
Ethnocentric preferences and the environment with international trade
Zanaj, Skerdilajda mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
[en] home bias, relative preferences, vertically differentiated model
[en] We define a model of international trade with two countries, two vertically differentiated goods, and heterogenous consumers concerning their willingness to pay for quality. Trade generates two sources of pollution: the production of domestic and traded goods, and their transportation between countries. Consumers in both countries manifest home bias which translates into ethnocentric preferences: (i) consumer perceive the quality of the domestic good amplified; and (ii) consumers thrive additional satisfaction when consuming a domestic good rather than a foreign one since only the former can satisfy their sense of place. By contrast, they suffer a psychological penalty when consuming a foreign product. We investigate the role of trade costs and ethnocentric attitude in shaping the equilibrium configuration of the international duopoly. Finally, we uncover the environmental damage from production and from transport in presence of ethnocentrism.

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