The neoclassical model and the welfare costs of selection

IF 2.3 3区 经济学 Q2 ECONOMICS
Fabrice Collard , Omar Licandro
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引用次数: 0

Abstract

This paper embeds firm dynamics into the Neoclassical model in a framework with partially reversible capital and investment distortions, allowing for a simple characterization of the transitional dynamics of economies moving towards greater selection. At equilibrium, aggregate technology is Neoclassical, with the quality of capital and the depreciation rate depending on selection. As investment distortions are corrected, selection increases, and both output per capita and welfare rise at the steady state. However, selection destroys existing production capacities, leading to transitional welfare losses. When calibrated to the US, the model shows that developing countries reducing investment distortions to US levels would experience substantial steady-state welfare gains, though transitional costs could absorb 70% to 76% of these gains. While the associated welfare gains from selection at steady-state are significant, between 10% and 23%, transitional costs largely offset these additional welfare gains.
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来源期刊
CiteScore
3.30
自引率
0.00%
发文量
69
期刊介绍: Review of Economic Dynamics publishes meritorious original contributions to dynamic economics. The scope of the journal is intended to be broad and to reflect the view of the Society for Economic Dynamics that the field of economics is unified by the scientific approach to economics. We will publish contributions in any area of economics provided they meet the highest standards of scientific research.
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