Publication Type
Journal Article
Version
submittedVersion
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
Citation
HOLMES, Thomas J.; HSU, Wen-Tai; and LEE, Sanghoon.
Allocative Efficiency, Mark-ups, and the Welfare Gains from Trade. (2014). Journal of International Economics. 94, (2), 195-206.
Available at: https://ink.library.smu.edu.sg/soe_research/1643
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jinteco.2014.07.002