On Measuring Welfare Changes When Varieties are Endogenous

36 Pages Posted: 17 Jan 2017

See all articles by Kristian Behrens

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics

Yoshitsugu Kanemoto

National Graduate Institute for Policy Studies

Yasusada Murata

Nihon University

Date Written: January 2017

Abstract

Extant studies take it for granted that there is a one-to-one mapping from a change in the equilibrium allocation to a change in welfare. We show that such a premise does not apply to fairly standard models of monopolistic competition. For any change in the equilibrium allocation, there exist an infinite number of possible welfare changes when the mass of varieties consumed differs between the two equilibria. Our results thus reveal a fundamental difficulty in measuring welfare changes when varieties are endogenous.

Keywords: monopolistic competition, welfare changes

JEL Classification: D60, L13

Suggested Citation

Behrens, Kristian and Kanemoto, Yoshitsugu and Murata, Yasusada, On Measuring Welfare Changes When Varieties are Endogenous (January 2017). CEPR Discussion Paper No. DP11774, Available at SSRN: https://ssrn.com/abstract=2900191

Kristian Behrens (Contact Author)

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Yoshitsugu Kanemoto

National Graduate Institute for Policy Studies ( email )

7-22-1 Roppongi, Minato-ku
Tokyo, Tokyo 106-8677
Japan

Yasusada Murata

Nihon University ( email )

Tokyo
Japan

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