Economics Seminar: Selection Effects with Heterogeneous Firms

When?

Wednesday 2 November 2011, 16:00 to 17:00

Where?

04AD00

Open to:

Public, Staff, Students

Speaker:

Dr. Monica Mrazova (Surrey)

Prof. Peter Neary (Oxford)

"Selection Effects with Heterogeneous Firms" (with Monika Mrazova)

Abstract

We provide a general characterization of which firms will select alternative ways of serving a market. If and only if firms' maximum profits are supermodular in production and market-access costs, more efficient firms will engage in the activity with lower market-access costs whereas less efficient ones will not. Our result applies in a range of models and under a variety of assumptions about market structure. We show that supermodularity holds in many cases but not in all. Exceptions include FDI (both horizontal and vertical) with non-CES preferences, fixed costs that vary with access mode, and R&D with threshold effects.