New trade models, elusive welfare gains

Yasusada Murata and Kristian Behrens ()
Authors registered in the RePEc Author Service: Yoshitsugu Kanemoto

No 10255, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We generalize the formulae for welfare changes by Arkolakis, Costinot, and Rodríguez-Clare (2012) and Melitz and Redding (2014a) to allow for various cardinalizations of the subutility functions for varieties. Despite the same macro restrictions and the same equilibrium allocations, our new formula coincides with the original ones if and only if the number of varieties is invariant to foreign shocks. When product diversity responds to foreign shocks, different cardinalizations generate different welfare changes, thus revealing a fundamental difficulty in quantifying welfare gains implied by new trade models.

Keywords: Cardinalization; New trade models; Product diversity; Subutility function; Welfare gains from trade (search for similar items in EconPapers)
JEL-codes: F11 F12 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-int and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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