We develop a monopolistic competition model with heterogeneous agents who self-select into occupations (entrepreneurs and workers) depending on innate ability. The effect of market size on the equilibrium occupational structure crucially hinges on properties of the lower tier utility function—its scale elasticity and relative love for-variety.When combined with the underlying ability distribution, the share of entrepreneurs and income inequality can increase or decrease with market size. When extended to allow for the endogenous sorting of mobile agents between cities, numerical examples suggest that sorting may increase inequality within and between cities.
Standard measures of competitive toughness fail to capture the fact that, as consumers optimize intertemporally, firms operating today compete with (yet non-existent) businesses which will be started tomorrow. We develop a two-tier CES model of dynamic monopolistic competition in which the impact of product differentiation on the market outcome depends crucially on the elasticity of intertemporal substitution (EIS). The degree of product differentiation per se fails to serve as a meaningful indicator of competitive toughness: what matters is its cross-effect with EIS. We also extend the model to the case of non-CES preferences to capture variable markups.
This paper compares the market equilibria in a differentiated industry under Cournot, Bertrand, and monopolistic competition. This is accomplished in a one-sector economy where consumers are endowed with separable preferences. When firms are free to enter the market, monopolistically competitive firms charge lower prices than oligopolistic firms, while the mass of varieties provided by the market is smaller under the former than the latter. If the economy is sufficiently large, Cournot, Bertrand and Chamberlin solutions converge toward the same market outcome, which may be a competitive or a monopolistically competitive equilibrium, depending on the nature of preferences.
We study how technological progress in manufacturing and transportation to-gether with migration costs interact to shape the space-economy. Rising labor productivity in the manufacturing sector fosters the agglomeration of activities, whereas falling transport costs associated with technological and organizational in-novations fosters their dispersion. Since these two forces have been at work for a long time, the final outcome must depend on how drops in the costs of producing and trading goods interact with the various costs borne by migrants. Finally, when labor is heterogeneous, the most efficient workers of the less productive region are the first to move to the more productive region.
We study the relationship between income and environmental quality based on modern Russian city-level data. The paper aims at testing whether the environmental Kuznets curve relationship between air pollution and average monthly wages holds in Russian cities and towns. Our preliminary results support the presence of an inverted U-shaped function of wages and reveal significant spatial autocorrelation of air pollution indicators of Russian cities and towns.
We derive a simple necessary and sufficient condition on preferences for the market outcome to be socially optimal under monopolistic competition with input-output (IO) linkages. Preferences that satisfy this condition are typically non-CES and display pro-competitive effects, although they converge to the CES when IO linkages become negligibly weak. We show that the equilibrium with pro-competitive effects may deliver both excess and insufficient entry of firms in equilibrium.