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Title of the article The Market Size Effect оn Formation оf Business Sector аnd Inequality Level Among Individuals Under Inelastic Production of Each Firm
Pages 12-30
Author 1 Dmitriy Aleksandrovich Pokrovskiy
Research Fellow.
National Research University Higher School of Economics
16 Soyuza Pechatnikov Street, Saint-Petersburg, Russia, 190068
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Abstract This paper is addressed to explanation of impact of market size on selection into entrepreneurship and inequality within two-sector economy with secluded good, populated by individuals with additively-separable preferences, defined by power specification of utility function. Individuals are differentiated by two characteristics: productivity and type of variety, which can be potentially produced by given individual if he or she chooses entrepreneurial activity instead of salaried work. Each entrepreneur can produce only one unit of givenindividual characteristics specific variety. The specific variety are produced not unique producer, but for any type of entrepreneurial ability there are individuals with given ability, who produce the same variety. Number of such producers is defined by distribution of entrepreneurial abilities. Anyone of entrepreneurs producing the given type of variety has no market power and sells the variety by market price. From the other side, under giventype of entrepreneurial abilitywhole range of varieties are produced by different entrepreneurs with given entrepreneurial ability. As far cost of production depends on entreprenurial ability, the prices charged by entrepreneurs with the same ability are equal. Such specification of market structure allows consider symmetric equilibrium in terms of prices. The main result oаthe model is nontrivial impact of market size on outcome: the bigger number of population, the less share of salaried workers, the hire prices and the economy is more unequal.
Code 338.001.36
DOI 10.14530/se.2015.2.012-030
Keywords еntrepreneurship ♦ distribution of abilities ♦ two-dimensional heterogeneity of individuals ♦ inelastic production ♦ income inequality ♦ effect of market size
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For citation Pokrovskiy D.A. The Market Size Effect оn Formation оf Business Sector аnd Inequality Level Among Individuals Under Inelastic Production of Each Firm. Prostranstvennaya Ekonomika = Spatial Economics, 2015, no. 2, pp. 12-30. DOI: 10.14530/se.2015.2.012-030. (In Russian).
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