The envelope (theorem) please: Profits, efficiency wages, and monopsony | Arindrajit Dube

The envelope (theorem) please: Profits, efficiency wages, and monopsony | Arindrajit Dube: "As Krugman points out, this is logic of the “envelope theorem.” What I want to clarify in this post is that the logic behind this argument is more general than the particular efficiency wage model Krugman works through.  Any time firms are choosing wages to balance various concerns—as opposed to simply accepting a “market wage” as a constraint—the logic of the envelope theorem applies.  What’s more, two types of empirically relevant models of the labor market—monopsonistic competition and efficiency wages—look pretty similar in this regard, and can be thought of as special cases of a more general model."



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