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A Generalized Variable Elasticity of Substitution Model of New Economic Geography

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  • Sylvain Barde

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

This paper analyses the methodology developed by Behrens and Murata (2007) to introduce variable mark-ups into models of monopolistic competition. Their risk- aversion explanation to the presence of ¯xed mark-ups in the Dixit and Stiglitz (1977) model is validated; however, we show that their constant absolute risk aversion solution ignores existing mechanisms found in the new Keynesian literature. From these we develop a model of new economic geography with a variable elasticity of substitution and variable mark-ups consistent with Behrens and Murata (2007). However, we argue that from both a theoretical and empirical perspective this new Keynesian approach is preferable to the solution of Behrens and Murata (2007).

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  • Sylvain Barde, 2008. "A Generalized Variable Elasticity of Substitution Model of New Economic Geography," Working Papers hal-01066187, HAL.
    • Handle: RePEc:hal:wpaper:hal-01066187
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01066187
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    Cited by:

    1. Pospelov Igor & Radionov Stanislav, 2015. "On the Social Efficiency in Monopolistic Competition Models," Higher School of Economics Economic Journal Экономический журнал Высшей школы экономики, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 19(3), pages 386-394.
    2. Kristian Behrens & Sergey Kichko & Philip Ushchev & Sergei Kichko, 2018. "Intersectoral Markup Divergence," CESifo Working Paper Series 6965, CESifo.

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    More about this item

    Keywords

    new economic geography; variable mark-ups; monopolistic competition; flexible varieties aggregator;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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