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Welfare and Trade Without Pareto

Author

Listed:
  • Keith Head

    (Sauder School of Business [British Columbia])

  • Thierry Mayer

    (Département d'économie)

  • Mathias Thoenig

    (Centre Universitaire d'Informatique)

Abstract

This paper investigates the consequences of replacing the assumption of Pareto heterogeneity with log-normal heterogeneity. This case is interesting because it (a) maintains some desirable analytic features of Pareto, (b) ts the complete distribution of rm sales rather than just approximating the right tail, and (c) can be generated under equally plausible processes (see online appendix). The log-normal is reasonably tractable but its use sacrices some \scale-free" properties conveyed by the Pareto distribution. Aspects of the the calibration that do not matter under Pareto lead to important dierences in the gains from trade under log-normal.

Suggested Citation

  • Keith Head & Thierry Mayer & Mathias Thoenig, 2014. "Welfare and Trade Without Pareto," Sciences Po Economics Discussion Papers 2014-02, Sciences Po Departement of Economics.
    • Handle: RePEc:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p2m9j4i07
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    More about this item

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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