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Behrens, Kristian
Mion, Giordano
Murata, Yasusada
Suedekum, Jens
Year of Publication: 
Series/Report no.: 
Document de travail No. 2018-01
Equilibria and optima generally differ in imperfectly competitive markets. While this is well understood theoretically, it is unclear how large the welfare distortions are in the aggregate economy. Do they matter quantitatively? To answer this question, we develop a multi-sector monopolistic competition model with endogenous firm entry and selection, productivity, and markups. Using French and British data, we quantify the gap between the equilibrium and optimal allocations. In our preferred specification, inefficiencies in the labor allocation and entry between sectors, as well as inefficient selection and output per firm within sectors, generate welfare losses of about 6-10% of gdp.
Document Type: 
Working Paper

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