Working Paper: NBER ID: w22514
Authors: Timothy J. Kehoe; Pau S. Pujolas; Kim J. Ruhl
Abstract: We show that a trade model with an exogenous set of heterogeneous firms with fixed operating costs has the same aggregate outcomes as a span-of-control model. Fixed costs in the heterogeneous-firm model are entrepreneurs’ forgone wage in the span-of-control model.
Keywords: entrepreneurs; international trade; opportunity costs; fixed costs
JEL Codes: D31; D43; F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade liberalization (F13) | increase in profits for more productive firms (D21) |
| increase in profits for more productive firms (D21) | change in income distribution (D31) |
| Trade liberalization (F13) | change in income distribution (D31) |
| Entrepreneurial choices (L26) | income levels (J31) |
| Trade model with heterogeneous firms facing fixed operating costs (F12) | outcomes equivalent to span-of-control model (M54) |
| Fixed costs in heterogeneous-firm model (D21) | opportunity costs of entrepreneurs' forgone wages in span-of-control model (J17) |