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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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File URL: http://ftp.iza.org/dp3803.pdf
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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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