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Title: On measuring welfare changes when varieties are endogenous

Author(s): Kristian Behrens, Yoshitsugu Kanemoto and Yasusada Murata

Publication Date: January 2017

Keyword(s): monopolistic competition and welfare changes

Programme Area(s): International Trade and Regional Economics

Abstract: Extant studies take it for granted that there is a one-to-one mapping from a change in the equilibrium allocation to a change in welfare. We show that such a premise does not apply to fairly standard models of monopolistic competition. For any change in the equilibrium allocation, there exist an infinite number of possible welfare changes when the mass of varieties consumed differs between the two equilibria. Our results thus reveal a fundamental difficulty in measuring welfare changes when varieties are endogenous.

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Bibliographic Reference

Behrens, K, Kanemoto, Y and Murata, Y. 2017. 'On measuring welfare changes when varieties are endogenous'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11774