Accounting for Agent Heterogeneity in Market and Policy Analysis

Abstract

Last but not least, I would like to thank my wife Tala and my children Ritsa and Christos for their patience, love, support, and for making life wonderful. Working on this book has been a challenging and edifying endeavor. I hope you find it useful and stimulating.

An economic analysis of the “Buy Local” trend

“…For simplicity, we assume perfect competition among the middlemen and zero processing costs, so that $${p}_{i}^{D}={p}_{i}^{S}={p}_{i}\,(i=L,H)$$, where $$D$$ and $$S$$ indicate demand and supply sides, respectively. The parameters $${w}_{L}$$ and $${w}_{H}$$ are the costs that are exogenous to producers, while the parameters $$a$$ and $$b$$ are cost enhancement factors, which, when multiplied by the value of $$C$$, give the idiosyncratic costs of producing low‐ and high‐quality products, respectively (see Giannakas, 2019). To ensure a nonnegative relation between quality and cost of production, we assume $$b\gt a$$, while, to save on notation, the net returns associated with the production of the alternative product are normalized to zero.…”