Rationalizing Repugnance: Prohibiting and Protecting Transactions to Prevent Dominance

Individuals deem repugnant and societies routinely proscribe market transactions in sex, organs, surrogacy, and other goods, despite potential gains from trade. We resolve this tension by observing that repugnance norms may... [ view full abstract ]

Individuals deem repugnant and societies routinely proscribe market transactions in sex, organs, surrogacy, and other goods, despite potential gains from trade. We resolve this tension by observing that repugnance norms may enhance welfare among status-conscious individuals. We study a textbook exchange economy, except the agents are averse to dominance: One loses status when surpassed by another in every dimension of his consumption bundle. Repugnance norms and laws enforce market partitions by preventing trade across submarkets, thereby eliminating dominance. Socially optimal partitions depend on whether individuals account for potential dominance when choosing consumption bundles. Those who do, target consumption of certain goods, to avoid dominance. This targeting leads to multiple equilibria and so creates scope for government coordination through the norms that protect status goods. As a result, in addition to examples of repugnance, our we explain instances of protection, such as fair trade goods, owner-occupied housing, and locally sourced produce.