Salle 3001

Omar LICANDRO (University of Leicester) “The Neoclassical Model and the Welfare Costs of Selection”

Abstract: This paper aims at sheding light on the counterbalancing costs and benefits of policies addresses to improve market selection. Having this in mind, the paper embeds firm dynamics into the Neoclassical model in a framework that allows for a simple characterization of the transitional dynamics of economies moving towards more selection. As in the Neoclassical
model, markets are perfectly competitive, there is only one good and two production factors (capital and labor). At equilibrium, aggregate technology is Neoclassical, but the average quality of capital and the depreciation rate are both endogenous and positively related to selection. At steady state, output per capita and welfare both raise with selection. However, the selection process destroys past production capacities contributing to transitional welfare losses that may reduce in around 60% long term (consumption equivalent) welfare gains. 

Joint work : Fabrice COLLARD (TSE)

Organizer : Julien PRAT