On Sunk Costs and Trade Liberalization in Applied General Equilibrium
AbstractThe authors argue that the rationalization gains often predicted by static applied general equilibrium models with imperfect competition and scale economies are artificially boosted by an unrealistic treatment of fixed costs. They introduce sunk costs into one such model calibrated with real-world data. The authors show how this changes the oligopoly game in a way significant enough to affect, both qualitatively and quantitatively, the outcome of a trade liberalization exercise. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 37 (1996)
Issue (Month): 3 (August)
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- Jean Mercenier & Nicolas Schmitt, 1995. "On sunk costs and trade liberalization in applied general equilibrium," Staff Report 188, Federal Reserve Bank of Minneapolis.
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