Finding the sweet spot in the city: A monopolistic competition approach
We propose a general equilibrium model to study the spatial inequality of consumers and firms within a city. Our mechanics rely on Dixit and Stiglitz monopolistic competition framework. The firms and consumers are continuously distributed across a two-dimensional space, there are iceberg-type costs both for goods shipping and workers commuting (hence firms have variable marginal costs based on their location). Our main interest is in the equilibrium spatial distribution of wealth. We construct a model that is both tractable and general enough to stand the test of real city empirics. We provide some theoretical statements, but mostly the results of numerical simulations with the real Moscow data.
The sector of knowledgeintensive business services (KIBS) not only contributes to its own dynamic and innovative development but also to the development of the external environment through the creation, accumulation, and dissemination of knowledge. Therefore, it is considered one of the key pillars of the knowledgebased economy. This article addresses the problem of its spatial distribution in Russia. The basis of the study is uniquely empirical, obtained through a series of largescale surveys among Russian pro ducers and consumers of KIBS. The collected data provide quantitative evidence for the spatial dimension of the sector. Comparative analysis of the production and consumption of KIBS in Russia’s federal districts makes it possible to classify the latter in terms of the exchange of related services and mapping of the intensity of their interregional supply and demand across federal districts. It is established that companies offering KIBS in Russia are largely concentrated in big cities. The demand for KIBS is more distributed, but not spa tially neutral. This paper may be of interest to researchers focusing on the spatial distribution of elements of the innovationbased economy in Russia. It is also relevant for regional authorities, because it can help them assess the development capacity of their regions.
The article deals with the theory of monopolistic competition under demand uncertainty. The authors consider the economy with labor immobility consisting of the high-tech sector with monopolistic competition and the standard sector with perfect competition. Preferences between sectors are specified by the Cobb – Douglas production function. It is assumed that companies make output decisions under preferences uncertainty and consumers’ distribution by sectors will be known by the time of realization. It means that firms are informed about consumer demand with accuracy up to a multiplicative uncertainty which is generated by random parameters in the Cobb – Douglas utility function. The paper shows that demand uncertainty leads to consistent growth of prices and wages in high-tech sector in relation to salaries in the second sector. The impact of uncertainty on welfare is ambiguous. In particular, under the known expected value of uncertainty customers derive benefit from exaggerated companies’ expectations about clients’ desire to consume high-tech goods.
In this paper, we consider a model of monopolistic competition with volume of product quality in the task of economic growth. For this purpose, a model of consumers has been used, in the utility function of which, in addition to the love of diversity, love of product quality is included. For this model, the Ramsey equation is obtained, which includes the change in the time of product quality. For the industrial sector, the case is considered within firm investments in innovations aimed at improving the quality of the final product. For this scenario, arbitration equations were obtained and various modes of economic growth were analyzed taking into account changes in product quality
We propose a general equilibrium model to study the spatial inequality of consumers and firms within a city. Our mechanics rely on Dixit and Stiglitz monopolistic competition framework. The firms and consumers are continuously distributed across a two-dimensional space, there are iceberg-Type costs both for goods shipping and workers commuting (hence firms have variable marginal costs based on their location). Our main interest is in the equilibrium spatial distribution of wealth. We construct a model that is both tractable and general enough to stand the test of real city empirics. We provide some theoretical statements, but mostly the results of numerical simulations with the real Moscow data.
We consider standard monopolistic competition models in the spirit of Dixit and Stiglitz or Melitz with aggregate consumer's preferences defined by two well- known classes of utility functions – the implicitly defined Kimball utility function and the variable elasticity of substitution utility function. These two classes gene- ralize classical constant elasticity of substitution utility function and overcome its lack of flexibility. It is shown in [Dhingra, Morrow, 2012] that for the monopolis- tic competition model with aggregate consumer’s preferences defined by the va- riable elasticity of substitution utility function the laissez-faire equilibrium is effi- cient (i.e. coincides with social welfare state) only for the special case of constant elasticity of substitution utility function. We prove that the constant elasticity of substitution utility function is also the only one which leads to efficient laissez- faire equilibrium in the monopolistic competition model with aggregate consu- mer’s preferences defined by the utility function from the Kimball class. Our main result is following: we find that in both cases a special tax on firms' output may be introduced such that market equilibrium becomes socially efficient. In both cases this tax is calculated up to an arbitrary constant, and some considerations about the «most reasonable» value of this constant are presented.