Evgeny Zhelobodko

Monopolistic competition: Beyond the constant elasticity of substitution

We propose a model of monopolistic competition with additive preferences and variable marginal costs. Using the concept of “relative love for variety,” we provide a full characterization of the free-entry equilibrium.When the relative love for variety increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The constant elasticity of substitution is the only case in which all competitive effects are washed out. We also show that our results hold true when the economy involves several sectors, firms are heterogeneous, and preferences are given by the quadratic utility and the translog.

Agglomeration and Spreading in an Asymmetric World

We study Krugmans core–periphery (CP) model for most general cases of nonidentical regions and fully characterize instant and long‐run equilibria. Assuming immobility of labor, we describe the behavior of equilibrium wages/real wages. Moreover, the relative wages/real wages of industrial workers can both increase and decrease with the population with which they are associated. Under the assumption of industrial labor mobility, possible patterns of economic evolution, as responses to trade freeness, are fully described. We show that in the case of noticeable agricultural asymmetry, all mobile labor inevitably accumulates in countries with larger agricultural populations.

Losses from Trade in Krugman's Model: Almost Impossible

Studying the standard monopolistic competition model with unspecified utility/cost functions, we find necessary and sufficient conditions on the function elasticities, when an expanding market or trade incur welfare losses. Two numerical examples explain why: either excessive or insufficient entry of firms is aggravated by market growth. The variable marginal cost enforces the harmful effect. Still harm looks practically improbable.

Distortion in Screening and Spatial Preferences

We study a multidimensional screening problem with minimal restrictions on valuations. Our ?-relaxation of the constraints excludes bunching and cycles in the graph of active incentive-compatibility constraints. Therefore, the Lagrange multipliers do exist and enable us in characterizing distortion. In particular, under “spatial” preferences that include both the Hotelling and the Spence-Mirrlees cases, the solution has a simple planar graph. Consequently, the pattern of distortion is centrifugal, i.e., the points of service are biased towards the low-valuation market segments

Market size, occupational self-selection, sorting, and income inequality

We develop a monopolistic competition model with heterogeneous agents who self†select into occupations (entrepreneurs and workers) depending on innate ability. The effect of market size on the equilibrium occupational structure crucially hinges on properties of the lower tier utility function—its scale elasticity and relative love†for†variety. When combined with the underlying ability distribution, the share of entrepreneurs and income inequality can increase or decrease with market size. When extended to allow for the endogenous sorting of mobile agents between cities, numerical examples suggest that sorting may increase inequality within and between cities.