Functional Forms for Tractable Economic Models and the Cost Structure of International Trade

61 Pages Posted: 30 Dec 2012 Last revised: 19 Aug 2018

Michal Fabinger

University of Tokyo - Graduate School of Economics

E. Glen Weyl

Microsoft Research New York City; Princeton University - Julis Rabinowitz Center for Public Policy and Finance

Date Written: August 17, 2018

Abstract

We present functional forms allowing a broader range of analytic solutions to common economic equilibrium problems. These can increase the realism of pen-and-paper solutions or speed large-scale numerical solutions as computational subroutines. We use the latter approach to build a tractable heterogeneous firm model of international trade accommodating economies of scale in export and diseconomies of scale in production, providing a natural, unified solution to several puzzles concerning trade costs. We briefly highlight applications in a range of other fields. Our method of generating analytic solutions is a discrete approximation to a logarithmically modified Laplace transform of equilibrium conditions. Supplementary material for this paper is available at the following URL: http://ssrn.com/abstract=2575471

Keywords: Tractability, closed-form solutions, Laplace transform, international trade, trade cost puzzle, supply-chain bargaining, labor bargaining, monopolistic competition

JEL Classification: C63, C68, D40, D58, E24, F11, H22, L10

Suggested Citation

Fabinger, Michal and Weyl, E. Glen, Functional Forms for Tractable Economic Models and the Cost Structure of International Trade (August 17, 2018). Available at SSRN: https://ssrn.com/abstract=2194855 or http://dx.doi.org/10.2139/ssrn.2194855

Michal Fabinger

University of Tokyo - Graduate School of Economics ( email )

Tokyo
Japan

HOME PAGE: http://sites.google.com/site/fabinger/

Eric Glen Weyl (Contact Author)

Microsoft Research New York City ( email )

641 Avenue of the Americas
7th Floor
New York, NY 10011
United States
8579984513 (Phone)

HOME PAGE: http://www.glenweyl.com

Princeton University - Julis Rabinowitz Center for Public Policy and Finance ( email )

Princeton University
Princeton, NJ 08544-1021
United States

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