Welfare in models of trade with heterogeneous firms

I illustrate that the welfare improvement property of the Melitz model is due to the shape of the aggregate labor demand curve, which slopes upwards. By slightly changing some assumptions in the model, this curve may have a negative slope. In this case, increases in aggregate productivity result in a reduction in welfare. For example, this may occur when fixed costs are measured in units of aggregate output instead of labor.

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Year of publication:	2008
Authors:	Janiak, Alexandre
Publisher:	Bonn : Institute for the Study of Labor (IZA)
Subject:	Neue Außenhandelstheorie \| Außenhandelsliberalisierung \| Wohlfahrtseffekt \| Arbeitsnachfrage \| Aggregation \| Allokation \| Theorie \| Heterogenous firms \| international trade \| aggregate labor demand curve \| welfare

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Series:	IZA discussion papers ; 3803
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	584695187 [GVK] hdl:10419/35737 [Handle]
Classification:	F12 - Models of Trade with Imperfect Competition and Scale Economies
Source:	EconStor