Economic Analysis of the Digital Economy by Avi Goldfarb Shane M. Greenstein and Catherine E. Tucker

Author:Avi Goldfarb, Shane M. Greenstein, and Catherine E. Tucker [Goldfarb, Avi]
Language: eng
Format: epub
Publisher: The University of Chicago Press
Published: 2015-09-27T00:00:00+00:00

And further it yields for the interior solution. The corner solution, which arises when γ is sufficiently large, is and .

Depending on the wages and “prices” ( and ), there are three situations possible: both agents earn the enhancement, both buy it, or one buys and the other earns. We analyze each case in turn (for the interior solution).

1. When both agents earn the enhancement, then any consumption patterns in equilibrium must satisfy . Together with the formula for derived above, it yields

This is a complicated formula, but it uniquely characterizes with respect to the exogenous parameters.

2. When both agents buy the enhancement, then in any equilibrium it must be that . Then,

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