Welfare and Trade Without Pareto

Thierry Mayer and Keith Head
Authors registered in the RePEc Author Service: Mathias Thoenig

No 9826, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Quantifications of gains from trade in heterogeneous firm models assume that productivity is Pareto distributed. Replacing this assumption with log-normal heterogeneity retains some useful Pareto features, while providing a substantially better fit to sales distributions?especially in the left tail. The cost of log-normal is that gains from trade depend on the method of calibrating the fixed cost and productivity distribution parameters. When set to match the size distribution of firm sales in a given market, the log-normal assumption delivers gains from trade in a symmetric two country model that can be twice as large as under the Pareto assumption.

Keywords: Pareto; Trade; Welfare (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2014-02
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (146)

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Related works:
Journal Article: Welfare and Trade without Pareto (2014)
Working Paper: Welfare and Trade without Pareto (2014)
Working Paper: Welfare and Trade Without Pareto (2014)
Working Paper: Welfare and Trade without Pareto (2014)
Working Paper: Welfare and Trade Without Pareto (2014)
Working Paper: Welfare and Trade Without Pareto (2014)
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