Publication Type

Journal Article

Publication Date

11-2014

Abstract

This paper develops an index of allocative efficiency that depends upon the distribution of mark-ups across goods and is separable from an index of standard Ricardian gains from trade. 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.

Keywords

Allocative efficiency, Mark-ups, Oligopoly

Discipline

Economics | International Economics

Research Areas

Applied Microeconomics

Publication

Journal of International Economics

Volume

94

Issue

2

First Page

195

Last Page

206

ISSN

0022-1996

Identifier

10.1016/j.jinteco.2014.07.002

Publisher

Elsevier

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1016/j.jinteco.2014.07.002

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