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Distorted Monopolistic Competition

Kristian Behrens (), Giordano Mion (), Yasusada Murata and Jens Suedekum ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We characterize the equilibrium and optimal resource allocations in a general equilibrium model of monopolistic competition with multiple asymmetric sectors and heterogeneous firms. We first derive general results for additively separable preferences and general productivity distributions, and then analyze specific examples that allow for closed-form solutions and a simple quantification procedure. Using data for France and the United Kingdom, we find that the aggregate welfare distortion -- due to inefficient labour allocation and firm entry between sectors and inefficient selection and output within sectors -- is equivalent to the contribution of 6-8% of the total labour input.

Keywords: monopolistic competition; welfare distortion; intersectoral distortions (search for similar items in EconPapers)
JEL-codes: D43 D50 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
Date: 2016-12
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http://cep.lse.ac.uk/pubs/download/dp1457.pdf (application/pdf)

Related works:
Working Paper: Distorted monopolistic competition (2016) Downloads
Working Paper: Distorted monopolistic competition (2016) Downloads
Working Paper: Distorted monopolistic competition (2016) Downloads
Working Paper: Distorted monopolistic competition (2016)
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