Working Papers
Working Papers
(Job Market Paper)
Abstract: I study how global trade and technology shocks propagate across local labor markets and affect the welfare of consumers with heterogeneous consumption baskets along the income distribution. I propose a tractable general equilibrium Ricardian–Roy framework that allows for non-homothetic expenditure patterns. Methodologically, it reconciles heterogeneous workers and non-homothetic demand with the “exact-hat algebra” approach to counterfactual analysis, which imposes minimal data requirements without separately identifying unobserved structural fundamentals. I also derive a generalized welfare gains formula for the distributional impact of trade shocks that applies to any demand system across sectors. Beyond its distributional implications, the framework yields a novel channel of aggregate welfare gains – the Consumption Inequality channel. I apply the model to revisit the general equilibrium effects of the China shock for 722 US commuting zones and a sample of other countries. I find that the China shock led to aggregate welfare gains of 0.71% for the US, about one-third of which is attributed to the Consumption Inequality channel. The shock disproportionately benefited low-income US consumers and commuting zones by reducing the relative prices of low-income elastic sectors. The distribution of welfare gains across income quantiles varied substantially between countries.
(an earlier version of the paper is available as SSRN WP 4010994, Jan 2022)
Abstract: This paper studies the implications of niche consumption for heterogeneous firms and for the distributional effects of trade. I propose a general equilibrium model with heterogeneous firms that choose among various market segments (“niches”) within a differentiated sector. In equilibrium, larger niches feature greater competition, driven by lower local prices. Positive assortative matching between niche size and firm productivity is driven by the demand side and implies that more productive firms endogenously sort into more competitive niches. The sorting mechanism generates a U-shaped equilibrium relationship between markups and both niche and firm size. Trade induces higher competition in all niches and an unambiguous shift in the matching function toward tougher selection. As a result, niche-specific markups may increase in response increased competition. I find that while consumers in mid-sized niches gain the most from trade, consumers in larger niches gain relatively less and may even bear welfare losses. The impact of small changes in trade costs is also highly uneven across consumers: consumers in niches previously unexposed to trade are those that lose from small reductions in trade costs. The sorting effect is sizable for most niches and accounts for up to 59% of total welfare gains in mid-sized niches. In contrast to costly trade patterns, gains from free trade are positive and monotonically decreasing in niche size. I also show that while Marshall’s Second Law of Demand is a necessary and sufficient condition for positive sorting under many standard classes of preferences, it is neither necessary nor sufficient under the generalized Gorman-Pollak demand system.
American Economic Journal: Microeconomics, 2024, 16(2): 354–384 (with S.Kokovin, A.Ozhegova, A.Tarasov, and P.Ushchev)
Abstract: Our novel approach to modeling monopolistic competition with heterogeneous firms and consumers involves spatial product differentiation, in either a geographical space or a space of characteristics. In addition to price, each firm chooses location in space. We formulate conditions for positive sorting – more-productive firms serve larger market segments and face tougher competition – and for existence and uniqueness of equilibrium. To quantify the role of sorting, we calibrate the model using haircut market data and perform counterfactual analysis. Inequality in gains among consumers caused by positive market shocks can be substantial: gains for consumers at more-populated locations are three to four times higher.