Working Paper: NBER ID: w25952
Authors: Corina Boar; Virgiliu Midrigan
Abstract: We study optimal product market interventions in an unequal economy in which firm ownership is concentrated and markups increase with firm market shares. We characterize optimal regulation in a static Mirrleesian setting in which we impose no constraints on the shape of interventions, and take into account their general equilibrium and distributional effects. We find that optimal regulation improves allocative efficiency, thereby increasing product market concentration. Though it leads to greater inequality, optimal regulation increases the equilibrium wage, benefiting most households. This result extends to a dynamic setting with capital and wealth accumulation.
Keywords: No keywords provided
JEL Codes: D4; E2; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal product market regulation (L50) | allocative efficiency (D61) |
| allocative efficiency (D61) | product market concentration (L19) |
| optimal product market regulation (L50) | equilibrium wage (J31) |
| equilibrium wage (J31) | household benefit (D14) |
| optimal product market regulation (L50) | income inequality among entrepreneurs (D31) |
| optimal product market regulation (L50) | welfare (I38) |
| optimal interventions (C61) | long-term wealth and income inequality (D31) |
| medium-sized businesses (L25) | larger corporate firms (L20) |