On measuring welfare changes when varieties are endogenous

Kristian Behrens, Yasusada Murata and Yoshitsugu Kanemoto

No 11774, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Monopolistic competition; Welfare changes (search for similar items in EconPapers)
JEL-codes: D60 L13 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (2)

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Working Paper: On measuring welfare changes when varieties are endogenous (2016)
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