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Costs of Low Productivity: Intensive and Extensive Margins


  • goksel, turkmen


This paper discusses welfare costs of a decrease in productivity and argues that there are two important channels which cause a reduction in welfare: a decrease in output per firm (intensive margin) and a decrease in number of operating firms (extensive margin). Traditional Dixit-Stiglitz monopolistic competition framework with constant elasticity of substitution utility and common productivity across firms fail to capture the extensive margin. To address this problem, this paper introduces “continuum-quadratic” utility (i.e. linear demand system) while keeping the other assumptions unchanged and finds that lowering productivity affects not only the intensive but extensive margin as well.

Suggested Citation

  • goksel, turkmen, 2012. "Costs of Low Productivity: Intensive and Extensive Margins," MPRA Paper 40804, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40804

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    References listed on IDEAS

    1. North, Douglass C, 1994. "Economic Performance through Time," American Economic Review, American Economic Association, vol. 84(3), pages 359-368, June.
    2. Wang, Jirong & Cramer, Gail L. & Wailes, Eric J., 1996. "Production efficiency of Chinese agriculture: evidence from rural household survey data," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 15(1), September.
    3. Msuya, Elibariki & Ashimogo, Gasper, 2005. "Estimation of Technical Efficiency in Tanzanian Sugarcane Production: A Case Study of Mtibwa Sugar Estate Outgrowers Scheme," MPRA Paper 3747, University Library of Munich, Germany.
    4. Alvarez, Antonio & Arias, Carlos, 2004. "Technical efficiency and farm size: a conditional analysis," Agricultural Economics, Blackwell, vol. 30(3), pages 241-250, May.
    5. Stefan Osborne & Michael A. Trueblood, 2006. "An examination of economic efficiency of Russian crop production in the reform period," Agricultural Economics, International Association of Agricultural Economists, vol. 34(1), pages 25-38, January.
    6. Udry, Christopher & Hoddinott, John & Alderman, Harold & Haddad, Lawrence, 1995. "Gender differentials in farm productivity: implications for household efficiency and agricultural policy," Food Policy, Elsevier, vol. 20(5), pages 407-423, October.
    7. Devadoss, Stephen & Kropf, Jurgen, 1996. "Impacts of trade liberalizations under the Uruguay round on the world sugar market," Agricultural Economics, Blackwell, vol. 15(2), pages 83-96, November.
    8. Abdulai, Awudu & Huffman, Wallace, 2000. "Structural Adjustment and Economic Efficiency of Rice Farmers in Northern Ghana," Economic Development and Cultural Change, University of Chicago Press, vol. 48(3), pages 503-520, April.
    9. Binam, Joachim Nyemeck & Tonye, Jean & wandji, Njankoua & Nyambi, Gwendoline & Akoa, Mireille, 2004. "Factors affecting the technical efficiency among smallholder farmers in the slash and burn agriculture zone of Cameroon," Food Policy, Elsevier, vol. 29(5), pages 531-545, October.
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    More about this item


    productivity; quadratic utility; monpolistic competition;

    JEL classification:

    • L00 - Industrial Organization - - General - - - General

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