New trade models, elusive welfare gains

Kristian Behrens (), Yoshitsugu Kanemoto and Yasusada Murata

No 14-20, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

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.

Pages: 14 pages
Date: 2014-11
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (6)

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Working Paper: New trade models, elusive welfare gains (2014)
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