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Distributional comparative statics with heterogeneous agents

Author

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  • Andreas Hefti

Abstract

We propose a formal way to systematically study the differential effects of exogenous shocks in economic models with heterogeneous agents. Our setting applies to models that can be rephrased as "competition for market shares" in a broad sense. We show that even in presence of any number of arbitrarily heterogeneous agents, a single recursion relation characterizes the distributional pattern of equilibrium market shares and related measures. We identify the general conditions under which the market share function rotates, thereby either causing more or less equality among the agents. Our setting highlights the exceptional rule that power functions play for the distributional effects. We apply our method across economic models, including examples from monopolistic competition, discrete choice, partial and general equilibrium theory and contest theory.

Suggested Citation

  • Andreas Hefti, 2016. "Distributional comparative statics with heterogeneous agents," ECON - Working Papers 237, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:237
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    File URL: http://www.econ.uzh.ch/static/wp/econwp237.pdf
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    References listed on IDEAS

    as
    1. Chung, Tai-Yeong, 1996. "Rent-Seeking Contest When the Prize Increases with Aggregate Efforts," Public Choice, Springer, vol. 87(1-2), pages 55-66, April.
    2. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    3. Amegashie, J Atsu, 1999. "The Number of Rent-Seekers and Aggregate Rent-Seeking Expenditures: An Unpleasant Result," Public Choice, Springer, vol. 99(1-2), pages 57-62, April.
    4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    5. Andreas Hefti & Shuo Liu, 2016. "Targeted information and limited attention," ECON - Working Papers 230, Department of Economics - University of Zurich, revised Dec 2019.
    6. 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.
    7. Andreas M. Hefti, 2011. "Attention competition," ECON - Working Papers 028, Department of Economics - University of Zurich.
    8. Justin P. Johnson, 2013. "Targeted advertising and advertising avoidance," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 128-144, March.
    9. Clark, Derek J & Riis, Christian, 1998. "Competition over More Than One Prize," American Economic Review, American Economic Association, vol. 88(1), pages 276-289, March.
    10. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
    11. Hefti, Andreas, 2016. "On the relationship between uniqueness and stability in sum-aggregative, symmetric and general differentiable games," Mathematical Social Sciences, Elsevier, vol. 80(C), pages 83-96.
    12. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Heterogeneity; inequality; monopolistic competition; general equilibrium; contest theory;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools

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