On Sunk Costs and Trade Liberalization in Applied General Equilibrium

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Creator Series Issue number
  • 188
Date Created
  • 1995-03
Abstract
  • We argue that the rationalization gains often predicted by static applied general equilibrium models with imperfect competition and scale economies are artificially boosted by an unrealistic treatment of fixed costs. We introduce sunk costs into one such model calibrated with real-world data. We show how this changes the oligopoly game in a way significant enough to affect, both qualitatively and quantitatively, the outcome of a trade liberalization exercise.

Subject (JEL) Keyword Related information Date Modified
  • 11/08/2019
Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
Publisher
  • Federal Reserve Bank of Minneapolis
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