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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.



Item Type: MPRA Paper -

Original Title: Costs of Low Productivity: Intensive and Extensive Margins-

Language: English-

Keywords: productivity, quadratic utility, monpolistic competition-

Subjects: L - Industrial Organization > L0 - General > L00 - General-





Autor: goksel, turkmen

Fuente: https://mpra.ub.uni-muenchen.de/40804/







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