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Innovation, firm size distribution, and gains from trade.
- Source :
- Theoretical Economics; Jan2023, Vol. 18 Issue 1, p341-380, 40p
- Publication Year :
- 2023
-
Abstract
- Power laws in productivity and firm size are well documented empirical regularities. As they are upper right‐tail phenomena, this paper shows that assuming asymptotic power functions for various model primitives (such as demand and firm heterogeneity) are sufficient for matching these regularities. This greatly relaxes the functional‐form restrictions in economic modeling and can be beneficial in certain contexts. We demonstrate this in a modified Melitz (2003) model, which embeds an innovation mechanism so as to endogenize the productivity distribution and generate both of the above‐mentioned power laws. We also investigate the model's welfare implications with regard to innovation by conducting a quantitative analysis of the welfare gains from trade. [ABSTRACT FROM AUTHOR]
- Subjects :
- BUSINESS size
ECONOMIC models
QUANTITATIVE research
HETEROGENEITY
LAW firms
Subjects
Details
- Language :
- English
- ISSN :
- 15557561
- Volume :
- 18
- Issue :
- 1
- Database :
- Complementary Index
- Journal :
- Theoretical Economics
- Publication Type :
- Academic Journal
- Accession number :
- 161472857
- Full Text :
- https://doi.org/10.3982/TE4152