Social optimality in interregional trade models

Abstract

We study the model of interregional trade under monopolistic competition of producers. We obtain a local comparative statics of symmetric social optimality with respect to transport costs. Particular attention is paid to situations of free trade and autarky. For the case of two regions, counterintuitive results we obtain that (1) with low transport costs in one of the regions, public welfare can either increase or decrease; (2) when transport costs are high, trade liberalization worsens public welfare in one region and improves it in another.