Allocative Efficiency, Mark-ups, and the Welfare Gains from Trade

Thomas Holmes (), Wen-Tai Hsu and Sanghoon Lee

No 19273, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops an index of allocative efficiency that depends upon the distribution of mark-ups across goods. It determines how changes in trade frictions affect allocative efficiency in an oligopoly model of international trade, decomposing the effect into the cost-change channel and the price-change channel. Formulas are derived shedding light on the signs and magnitudes of the two channels. In symmetric country models, trade tends to increase allocative efficiency through the cost-change channel, yielding a welfare benefit beyond productive efficiency gains. In contrast, the price-change channel has ambiguous effects on allocative efficiency.

JEL-codes: D61 F10 L13 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-eff and nep-int
Note: ITI PR
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Citations: View citations in EconPapers (15)

Published as Holmes, Thomas J. & Hsu, Wen-Tai & Lee, Sanghoon, 2014. "Allocative efficiency, mark-ups, and the welfare gains from trade," Journal of International Economics, Elsevier, vol. 94(2), pages 195-206.

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Journal Article: Allocative efficiency, mark-ups, and the welfare gains from trade (2014)
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