Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/234756 
Year of Publication: 
2018
Series/Report no.: 
Document de travail No. 2018-01
Publisher: 
Université du Québec à Montréal, École des sciences de la gestion (ESG UQAM), Département des sciences économiques, Montréal
Abstract: 
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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