Welfare and Trade without Pareto

Keith Head, Thierry Mayer and Mathias Thoenig

American Economic Review, 2014, vol. 104, issue 5, 310-16

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.

JEL-codes: C46 D24 D43 D60 L13 L25 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.5.310
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Citations: View citations in EconPapers (141)

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