Welfare in Models of Trade with Heterogeneous Firms

Alexandre Janiak

No 3803, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: I illustrate that the welfare improvement property of the Melitz model is due to the shape of the aggregate labor demand curve, which slopes upwards. By slightly changing some assumptions in the model, this curve may have a negative slope. In this case, increases in aggregate productivity result in a reduction in welfare. For example, this may occur when fixed costs are measured in units of aggregate output instead of labor.

Keywords: heterogenous firms; international trade; aggregate labor demand curve; welfare (search for similar items in EconPapers)
JEL-codes: F12 F16 J23 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2008-10
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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