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Indivisibilities in the Ricardian model of trade

Soo, Kwok Tong (2014): Indivisibilities in the Ricardian model of trade.

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Abstract

This paper develops a Ricardian model of trade in which there are indivisibilities in both production and consumption. Indivisibilities give rise to new results compared to the standard model with perfectly divisible production and consumption. Production indivisibility may result in complete specialisation even in autarky, while consumption indivisibility may result in consumption heterogeneity even amongst ex ante identical consumers. Indivisibilities lead to efficiency losses relative to the perfectly divisible case.

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