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Welfare in Models of Trade with Heterogeneous Firms

  • Janiak, Alexandre

    ()

    (University of Chile)

I illustrate that the welfare improvement property of the Melitz model is due to the shape of the aggregate labor demand curve, which slopes upwards. By slightly changing some assumptions in the model, this curve may have a negative slope. In this case, increases in aggregate productivity result in a reduction in welfare. For example, this may occur when fixed costs are measured in units of aggregate output instead of labor.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3803.

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Length: 12 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3803
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  1. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
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  13. Ronald Fischer, 2008. "Economic performance, creditor protection and labor inflexibility," Documentos de Trabajo 250, Centro de Economía Aplicada, Universidad de Chile.
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  16. Viviana Fernández & Brian M. Lucey, 2008. "Emerging Markets Variance Shocks: Local or International in Origin?," Documentos de Trabajo 251, Centro de Economía Aplicada, Universidad de Chile.
  17. Sebátian Infante & Nicolás Figueroa & Ronald Fischer, 2007. "Competition with asymmetric switching costs," Documentos de Trabajo 241, Centro de Economía Aplicada, Universidad de Chile.
  18. Nicolás Figueroa & Ronald Fischer & Sebastian Infante, 2008. "Loyalty inducing programs and competition with homogeneous goods," Documentos de Trabajo 249, Centro de Economía Aplicada, Universidad de Chile.
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