IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2505.24460.html
   My bibliography  Save this paper

Frictions and Welfare in Monopolistic Competition

Author

Listed:
  • Francesco Del Prato
  • Paolo Zacchia

Abstract

In a heterogeneous firm economy with monopolistic competition, could informational asymmetries between entrepreneurs and financial intermediaries sometimes improve welfare? We study this question by developing a model where banks finance entrepreneurs under asymmetric information. While aggregate productivity decreases with informational frictions, we find that welfare can be maximized at intermediate levels of information asymmetry due to a trade-off between productivity and product variety. Additionally, moderate input cost distortions can improve welfare when financial frictions are severe by offsetting the resulting weak firm selection.

Suggested Citation

  • Francesco Del Prato & Paolo Zacchia, 2025. "Frictions and Welfare in Monopolistic Competition," Papers 2505.24460, arXiv.org.
    • Handle: RePEc:arx:papers:2505.24460
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2505.24460
    File Function: Latest version
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2505.24460. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.