Variety, globalization, and social efficiency
Abstract: This paper puts recent work on the benefits of variety into the context of a more complete quantitative analysis of the Dixit-Stiglitz-Krugman model of monopolistic competition. We show how the gains from globalization are reflected in the increase in variety and the exploitation of economies of scale, and that the social efficiency question is quantitatively insignificant. These results follow from examining a Bertrand-Nash equilibrium that allows for a finite number of varieties to affect the elasticity of demand facing each firm. We develop a precise expression for per capita real income with any number of sectors where globalization increases productivity through economies of scale.
File(s): File format is application/pdf http://dallasfed.org/assets/documents/institute/wpapers/2008/0015.pdf
Provider: Federal Reserve Bank of Dallas
Part of Series: Globalization Institute Working Papers
Publication Date: 2008
Pages: 25 pages
Note: Published as: Cox, W. Michael and Roy J. Ruffin (2010), "Variety, Globalization, and Social Efficiency," Southern Economic Journal 76 (4): 1064-1075.