Behrens, Kristian Mion, Giordano Murata, Yasusada Suedekum, Jens
Year of Publication:
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Firm Strategy and Production: Theory and Evidence F22-V3
We characterize the equilibrium and optimal resource allocations in a general equilibrium model of monopolistic competition with multiple asymmetric sectors and heterogeneous firms. We first derive general results for additively separable preferences and general productivity distributions, and then analyze specific examples that allow for closed-form solutions and a simple quantification procedure. Using data for France and the United Kingdom, we find that the aggregate welfare distortion — due to inefficient labor allocation and firm entry between sectors and inefficient selection and output within sectors — is equivalent to the contribution of 6–8% of the total labor input.