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On measuring welfare changes when varieties are endogenous

Author

Listed:
  • Kristian Behrens

    () (Universite du Quebec a Montreal)

  • Yoshitsugu Kanemoto

    () (National Graduate Institute for Policy Studies)

  • Yasusada Murata

    () (Nihon University Population Research Institute)

Abstract

Extant studies take it for granted that there is a one-to-one mapping from a change in the equilibrium allocation to a change in welfare. We show that such a premise does not apply to fairly standard models of monopolistic competition. For any change in the equilibrium allocation, there exist an infinite number of possible welfare changes when the mass of varieties consumed differs between the two equilibria. Our results thus reveal a fundamental difficulty in measuring welfare changes when varieties are endogenous.

Suggested Citation

  • Kristian Behrens & Yoshitsugu Kanemoto & Yasusada Murata, 2016. "On measuring welfare changes when varieties are endogenous," GRIPS Discussion Papers 16-26, National Graduate Institute for Policy Studies.
  • Handle: RePEc:ngi:dpaper:16-26
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    References listed on IDEAS

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    5. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
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    12. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
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    Cited by:

    1. repec:bla:reviec:v:26:y:2018:i:4:p:869-891 is not listed on IDEAS
    2. Gabriel Felbermayr & Benjamin Jung, 2018. "Market size and TFP in the Melitz model," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 869-891, September.

    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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