Costs of Low Productivity: Intensive and Extensive Margins
AbstractThis paper discusses welfare costs of a decrease in productivity and argues that there are two important channels which cause a reduction in welfare: a decrease in output per firm (intensive margin) and a decrease in number of operating firms (extensive margin). Traditional Dixit-Stiglitz monopolistic competition framework with constant elasticity of substitution utility and common productivity across firms fail to capture the extensive margin. To address this problem, this paper introduces “continuum-quadratic” utility (i.e. linear demand system) while keeping the other assumptions unchanged and finds that lowering productivity affects not only the intensive but extensive margin as well.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 40804.
Date of creation: Jan 2012
Date of revision:
productivity; quadratic utility; monpolistic competition;
Other versions of this item:
- Türkmen GÖKSEL, 2013. "Costs of Low Productivity: Intensive and Extensive Margins," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 28(329), pages 09-20.
- L00 - Industrial Organization - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-03 (All new papers)
- NEP-BEC-2012-09-03 (Business Economics)
- NEP-COM-2012-09-03 (Industrial Competition)
- NEP-EFF-2012-09-03 (Efficiency & Productivity)
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