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Variety, globalization, and social efficiency

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  • Cox, W. Michael
  • Ruffin, Roy J.

Abstract

This paper puts recent work on the benefits of variety into the context of a more complete quantitative analysis of the Dixit-Stiglitz-Krugman model of monopolistic competition. We show how the gains from globalization are reflected in the increase in variety and the exploitation of economies of scale, and that the social efficiency question is quantitatively insignificant. These results follow from examining a Bertrand-Nash equilibrium that allows for a finite number of varieties to affect the elasticity of demand facing each firm. We develop a precise expression for per capita real income with any number of sectors where globalization increases productivity through economies of scale.

Suggested Citation

  • Cox, W. Michael & Ruffin, Roy J., 2008. "Variety, globalization, and social efficiency," Globalization and Monetary Policy Institute Working Paper 15, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:15 Note: Published as: Cox, W. Michael and Roy J. Ruffin (2010), "Variety, Globalization, and Social Efficiency," Southern Economic Journal 76 (4): 1064-1075.
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    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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