Keywords: Increasing returns, monopolistic competition, returns to variety
Abstract: This paper reviews various types of increasing returns from a critical
perspective. Increasing returns have been introduced in a
monopolistic-competition model both at the firm level and at the
aggregate level. We show that the degree of the aggregate returns to
scale is a linear combination of three return parameters, with the
weights determined by the specification of a zero-profit condition.
Identification issues are discussed with an emphasis on recent macro
literature. We argue that disaggregate data give information on the
market structure rather than the technology. Welfare implications
explain why it is important to identify various increasing returns.
Full paper (443 KB PDF)
| Full paper (504 KB Postscript)
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Last update: July 16, 1997