Generalized separability and the gains from trade
Thibault Fally ()
Economics Letters, 2019, vol. 178, issue C, 8-12
This note examines the gains from trade under a flexible demand system that encompasses three types of demand often imposed (cases of homothetic, directly-separable and indirectly-separable preferences), while retaining the property that prices can be summarized by a single aggregator. Combined with monopolistic competition and Pareto distributions of marginal costs on the supply side, this demand system yields more flexible responses of prices to income and trade, and a wider range of predictions for the gains from trade.
Keywords: Gains from trade; Gravity; Generalized separability; Single aggregator; Non-homothetic preferences (search for similar items in EconPapers)
JEL-codes: F10 D11 D43 L11 (search for similar items in EconPapers)
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