Sunk Costs, Market Access, Economic Integration and Welfare
AbstractThe nature of the equilibrium that arises after economic integration is shown to depend crucially on how initial entry costs are divided along two separate dimensions: market access versus technology costs, and fixed versus sunk costs. There are three post-integration equilibrium regimes: a traditional trade theory regime which arises when both market access costs and fixed costs are small, a new trade theory regime which arises when market access costs are small but fixed costs are high, and a market access regime which arises when market access costs are high. While the first two regimes have already appeared in the literature, the third is new. The sign, magnitude, and qualitative behavior of the welfare effects of integration across all three regimes depend on the configuration of these costs. Copyright 2002 by Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 10 (2002)
Issue (Month): 3 (August)
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- Olivier Cadot & Laure Dutoit & Marcelo Olarreaga, 2005.
"How Costly is it for Poor Farmers to Lift Themselves out of Subsistence?,"
Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP)
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- Pannone, Andrea, 2010. "Production, unemployment and wage flexibility in an ICT-assisted economy: A model," Structural Change and Economic Dynamics, Elsevier, vol. 21(3), pages 219-230, August.
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