Non-CES Trade Models, New Welfare Implications

Student: Molchanov Pavel

Supervisor: Philip Ushchev

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Applied Economics and Mathematical Methods (Master)

Final Grade: 10

Year of Graduation: 2016

I combine (Melitz, 2003) model with monopolistic competition and hetergeneous firms with non-CES preferences. I find that introduction of preferences with variable elasticity of substitution between varieties allows more productive firms to have higher monopoly power. This, in turn, reduces the dispersion of outputs of firms that differ in their productivities, induces market distortion and leads to inefficient allocation of production. In addition, the selection effect becomes more severe.

Full text (added May 22, 2016)

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