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Welfare and Trade Without Pareto

Author

Listed:
  • Keith Head

    (Sauder School of Business [British Columbia])

  • Thierry Mayer

    (Département d'économie)

  • Mathias Thoenig

    (Centre Universitaire d'Informatique)

Abstract

This paper investigates the consequences of replacing the assumption of Pareto heterogeneity with log-normal heterogeneity. This case is interesting because it (a) maintains some desirable analytic features of Pareto, (b) ts the complete distribution of rm sales rather than just approximating the right tail, and (c) can be generated under equally plausible processes (see online appendix). The log-normal is reasonably tractable but its use sacrices some \scale-free" properties conveyed by the Pareto distribution. Aspects of the the calibration that do not matter under Pareto lead to important dierences in the gains from trade under log-normal.

Suggested Citation

  • Keith Head & Thierry Mayer & Mathias Thoenig, 2014. "Welfare and Trade Without Pareto," Sciences Po publications 2014-02, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/f6h8764enu2lskk9p2m9j4i07
    as

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    References listed on IDEAS

    as
    1. Melitz, Marc J & Redding, Stephen J., 2013. "Firm Heterogeneity and Aggregate Welfare," CEPR Discussion Papers 9405, C.E.P.R. Discussion Papers.
    2. Novy, Dennis, 2013. "International trade without CES: Estimating translog gravity," Journal of International Economics, Elsevier, vol. 89(2), pages 271-282.
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    4. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
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    6. Reed, William J., 2001. "The Pareto, Zipf and other power laws," Economics Letters, Elsevier, vol. 74(1), pages 15-19, December.
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    8. Marc J. Melitz & Stephen J. Redding, 2015. "New Trade Models, New Welfare Implications," American Economic Review, American Economic Association, vol. 105(3), pages 1105-1146, March.
    9. Alan Spearot, 2016. "Unpacking the Long-Run Effects of Tariff Shocks: New Structural Implications from Firm Heterogeneity Models," American Economic Journal: Microeconomics, American Economic Association, vol. 8(2), pages 128-167, May.
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    12. repec:hrv:faseco:34299161 is not listed on IDEAS
    13. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    14. Gabaix, Xavier & Ioannides, Yannis M., 2004. "The evolution of city size distributions," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 53, pages 2341-2378 Elsevier.
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    More about this item

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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