Costs of Low Productivity: Intensive and Extensive Margins

Turkmen Goksel ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper discusses welfare costs of a decrease in productivity and argues that there are two important channels which cause a reduction in welfare: a decrease in output per firm (intensive margin) and a decrease in number of operating firms (extensive margin). Traditional Dixit-Stiglitz monopolistic competition framework with constant elasticity of substitution utility and common productivity across firms fail to capture the extensive margin. To address this problem, this paper introduces “continuum-quadratic” utility (i.e. linear demand system) while keeping the other assumptions unchanged and finds that lowering productivity affects not only the intensive but extensive margin as well.

Keywords: productivity; quadratic utility; monpolistic competition (search for similar items in EconPapers)
JEL-codes: L00 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-eff
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https://mpra.ub.uni-muenchen.de/40804/1/MPRA_paper_40804.pdf original version (application/pdf)

Related works:
Journal Article: Costs of Low Productivity: Intensive and Extensive Margins (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:40804

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