The Neoclassical Model and the Welfare Costs of Selection"

Fabrice Collard and Omar Licandro ()

Review of Economic Dynamics, 2025, vol. 57

Abstract: This paper embeds firm dynamics into the Neoclassical model in a framework with partially reversible capital and investment distortions, allowing for a simple characterization of the transitional dynamics of economies moving towards greater selection. At equilibrium, aggregate technology is Neoclassical, with the quality of capital and the depreciation rate depending on selection. As investment distortions are corrected, selection increases, and both output per capita and welfare rise at the steady state. However, selection destroys existing production capacities, leading to transitional welfare losses. When calibrated to the US, the model shows that developing countries reducing investment distortions to US levels would experience substantial steady-state welfare gains, though transitional costs could absorb 70% to 76% of these gains. While the associated welfare gains from selection at steady-state are significant, between 10% and 23%, transitional costs largely offset these additional welfare gains. (Copyright: Elsevier)

Keywords: Firm dynamics and selection; Neoclassical model; Capital irreversibility; Investment distortions; Transitional dynamics; Welfare gains (search for similar items in EconPapers)
JEL-codes: D6 E13 E23 O4 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2025.101284
None

Related works:
Working Paper: The Neoclassical Model and the Welfare Costs of Selection (2022)
Working Paper: The Neoclassical Model and the Welfare Costs of Selection (2021)
Working Paper: The Neoclassical Model and the Welfare Costs of Selection (2021)
Working Paper: The Neoclassical Model and the Welfare Costs of Selection (2021)
Working Paper: The Neoclassical Model and the Welfare Costs of Selection (2021)
Working Paper: The neoclassical model and the welfare costs of selection (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:23-240

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2025.101284

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().