The Average-Marginal Relationship and Tractable Equilibrium Forms

Michal Fabinger and E. Glen Weyl
Additional contact information
E. Glen Weyl: Microsoft Research New York City

No CIRJE-F-1028, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Economic variables with familiar tractable functional forms (constant-elasticity or linear) are only reweighted in the change from their average to marginal versions. They are also simple, featuring only one or two terms. These properties allow for closed-form solutions. We explicitly characterize all equilibrium systems obeying a generalization of these properties, showing they form a hierarchy of tractability. The resulting forms are more realistic (e.g. bell-shaped demand and U-shaped cost) but highly tractable. These forms have importantly different implications for policy analysis, as we illustrate with applications from innovation, industrial, international, auction and public economics.

Pages: 88 pages
Date: 2016-10
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2016cf1028

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