Love of Variety and the Long-Term Welfare Effects of Trade in Open-Access Renewable Resources

We analyze welfare effects of trade in open-access renewable resources, which is induced by consumer love of variety in resource consumption. We consider two countries that are heterogeneous in incomes - high and low - and symmetric otherwise. We show that increasing trade freeness benefits the high-income country, as it improves access to a larger variety of resources and also increases the high-income country's resource stock. The low-income country also benefits from improved access to variety, but due to the increased resource demand and resulting overuse, the low-income country's welfare may depend on trade freeness in a non-monotonic fashion. We derive conditions such that welfare first decreases and then increases when trade freeness varies from autarky to costless trade. In direct comparison, autarky may generate higher welfare than costless trade only under restrictive conditions, in particular if incomes are very asymmetric and if the love of variety effect is weak