Helping Minor Firms Reduces Welfare

Sajal Lahiri and Yoshiyasu Ono

Economic Journal, 1988, vol. 98, issue 393, 1199-1202

Abstract: The effect on national welfare of uneven technical progress and eli mination of a firm is analyzed under the existence of a Cournot oligopolistic sector. An increase in the share of an inefficient firm, owing to its innovations, results in a shift of production from more efficient firms to the inefficient firm, causing a less efficie nt allocation of production. It may decrease welfare even though the innovation itself is beneficial. Conversely, policies keeping ineffic ient firms from innovations or eliminating them may increase welfare, though they make the market structure more oligopolistic. Copyright 1988 by Royal Economic Society.

Date: 1988
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