ABSTRACT
It is widely accepted that in a stable and distortion-free competitive world, with just two trading countries and constant returns to scale, any feasible lump sum transfer between countries must reduce the well-being of the donor and enhance that of the recipient. However, proofs of the proposition have relied on the twin assumptions
1 that each of the two countries is egalitarian and therefore behaves like a single price-taking individual, and
Assumption (1) is essential. That much has been known, or should have been known, since the appearance of Johnson (1960). We now introduce a pure (non-excludable, non-rivalrous) public good and show that the proposition remains valid; that is, we show that assumption (2) is inessential. Only one public good is formally recognized. However, our conclusion is valid whatever the number of such goods.
