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Entrepreneurship and conflict generating product price changes

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  • Schweinberger, A.G.
  • Woodland, A.D.

Abstract

This paper addresses the issue of the impact of changes in world prices upon the welfare of households in small open economies. Making use of a model of a small open economy with one monopolistically competitive industry, we derive conditions under which an exogenous increase in the world price of the monopolistically competitive good, arising from a shift in demand, is conflict generating between the owners of unskilled and skilled labour in the short run but Pareto improving in the long run. Output adjustments at the intensive margin make for conflict generation, but the converse holds for adjustments at the extensive margin in the long run. The analysis highlights the importance of the induced increase in the number of domestic varieties and of the skilled labour intensity in the production of goods relative to its intensity in the setting up of firms.

Suggested Citation

  • Schweinberger, A.G. & Woodland, A.D., 2015. "Entrepreneurship and conflict generating product price changes," European Economic Review, Elsevier, vol. 78(C), pages 158-174.
    • Handle: RePEc:eee:eecrev:v:78:y:2015:i:c:p:158-174
    DOI: 10.1016/j.euroecorev.2015.04.008
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    More about this item

    Keywords

    Entrepreneurship; Product price changes; Conflict generation between the owners of firms and workers; Monopolistic competition; Pareto improvements in welfare;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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