Welfare and Trade without Pareto

Keith Head, Thierry Mayer and Mathias Thoenig

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Abstract: Quantifications of gains from trade in heterogeneous firm models assume that productivity is Pareto distributed. Replacing this assumption with log-normal heterogeneity retains some useful Pareto features, while providing a substantially better fit to sales distributions-especially in the left tail. The cost of log-normal is that gains from trade depend on the method of calibrating the fixed cost and productivity distribution parameters. When set to match the size distribution of firm sales in a given market, the log-normal assumption delivers gains from trade in a symmetric two-country model that can be twice as large as under the Pareto assumption.

Keywords: Welfare Theory; Trade Models; Microdata Simulations (search for similar items in EconPapers)
Date: 2014-05
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03460459v1
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Citations: View citations in EconPapers (122)

Published in American Economic Review, 2014, 104 (5), pp.310 - 316. ⟨10.1257/aer.104.5.310⟩

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Related works:
Journal Article: Welfare and Trade without Pareto (2014)
Working Paper: Welfare and Trade Without Pareto (2014)
Working Paper: Welfare and Trade Without Pareto (2014)
Working Paper: Welfare and Trade without Pareto (2014)
Working Paper: Welfare and Trade Without Pareto (2014)
Working Paper: Welfare and Trade Without Pareto (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03460459

DOI: 10.1257/aer.104.5.310

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