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Collard, Fabrice
and Licandro, Omar
(2021)
The Neoclassical Model and the Welfare Costs of Selection.
TSE Working Paper, n. 21-1246, Toulouse
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Abstract
This paper embeds firm dynamics into the Neoclassical model and provides a simple framework to solve for 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 generates transitional welfare losses that may reduce in around 60% long term (consumption equivalent) welfare gains. The same property is shown to be true in a standard general equilibrium model with entry and fixed production costs.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | September 2021 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Firm dynamics and selection, Neoclassical model, Capital irreversibility, Transitional dynamics, Investment distortions, Welfare gains |
| JEL Classification: | D6 - Welfare Economics E13 - Neoclassical E23 - Production O4 - Economic Growth and Aggregate Productivity |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse 1 Capitole |
| Site: | UT1 |
| Date Deposited: | 08 Sep 2021 08:51 |
| Last Modified: | 30 Sep 2025 07:13 |
| OAI Identifier: | oai:tse-fr.eu:125924 |
| URI: | https://publications.ut-capitole.fr/id/eprint/43797 |
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