Q investment models, factor complementary and monopolistic competition

The observed fact that firms invest even if capacities are not fully employed does not fit well into most standard formalizations of optimal firm behavior. In this paper, the q investment approach is adapted to an imperfectly competitive economy where the representative firm is assumed to face demand uncertainty. Nominal rigidities and short-run factor complementarity are imposed as sufficient conditions to allow for the coexistence of investment and excess capacity. Since capacities are underemployed, marginal q is shown to diverge from average q. Finally, excess capacity subsists at steady state which makes it more than a shortrun phenomeno

Demand uncertainy and unemployement in a monopoly union model

The main concern of this paper is to show the importance of demand uncertainty in the determination of the "natural rate of unemployment". In the goods market there is demand heterogeneity -coming from preferences, and demand uncertainty -related solely to heterogeneity. Demand uncertainty is introduced in a monopoly union model where unions set wages at the first stage of the game, without knowing with certainty the demand for the good produced by the firm. Because the union assigns a positive probability at the event "underemployment equilibrium", it expects that the expected unemployment rate be positive. Since all the uncertainty is firm specific (i.e., there is not aggregate uncertainty), aggregate employment is equal to the union expected employment and then there is unemployment at equilibrium. In some islands the idiosyncratic demand shock is high and firms produce constrained by its full-employment capacity, but at the same time in the other islands the idiosyncratic demand shock is low and firms optimally produce less than its full-employment output

Demand uncertainy and unemployement in a monopoly union model.

The main concern of this paper is to show the importance of demand uncertainty in the determination of the "natural rate of unemployment". In the goods market there is demand heterogeneity -coming from preferences, and demand uncertainty -related solely to heterogeneity. Demand uncertainty is introduced in a monopoly union model where unions set wages at the first stage of the game, without knowing with certainty the demand for the good produced by the firm. Because the union assigns a positive probability at the event "underemployment equilibrium", it expects that the expected unemployment rate be positive. Since all the uncertainty is firm specific (i.e., there is not aggregate uncertainty), aggregate employment is equal to the union expected employment and then there is unemployment at equilibrium. In some islands the idiosyncratic demand shock is high and firms produce constrained by its full-employment capacity, but at the same time in the other islands the idiosyncratic demand shock is low and firms optimally produce less than its full-employment output.Unemployment; Monopoly Union; Demand Uncertainty;

Uncertainty and Tobin´s q in a monopolistic competition framework.

This paper combines the adjustment cost hypothesis of Tobin's q models with Malinvaud's proposition that demand uncertainty matters in explaining investment. Demand uncertainty allows for ex-post excess capacity and leads firms to look at the expeeted excess capacity in deciding about investment. Marginal q is shown to be smaller than average q, the difference being explained by the degree of capacity utilization (DUC).Tobin's q; Investment; Monopolistic Competition; Quantity Rationing Model;

Q investment models, factor complementary and monopolistic competition.

The observed fact that firms invest even if capacities are not fully employed does not fit well into most standard formalizations of optimal firm behavior. In this paper, the q investment approach is adapted to an imperfectly competitive economy where the representative firm is assumed to face demand uncertainty. Nominal rigidities and short-run factor complementarity are imposed as sufficient conditions to allow for the coexistence of investment and excess capacity. Since capacities are underemployed, marginal q is shown to diverge from average q. Finally, excess capacity subsists at steady state which makes it more than a shortrun phenomenonTobin's q; Investment; Monopolistic Competition; Quantity Rationing Model;

Uncertainty and Tobin´s q in a monopolistic competition framework

This paper combines the adjustment cost hypothesis of Tobin's q models with Malinvaud's proposition that demand uncertainty matters in explaining investment. Demand uncertainty allows for ex-post excess capacity and leads firms to look at the expeeted excess capacity in deciding about investment. Marginal q is shown to be smaller than average q, the difference being explained by the degree of capacity utilization (DUC)

Underemployment and capital irreversivility in a unionized overlaping generations economy

In a unionized OLG model, it is shown that steady-state underutilization of labour and equipment can be due to the combination of the two following elements: (i) Irreversibility of capital, technology and skill decisions, (ii) Firm specific shocks on productivity. The presence of unions is neither sufficient nor necessary for having unemployment. The result of Devereux and Lockwood (1991) that union power affect positively the capital stock in general equilibrium does not always hold under capital irreversibility

The underestimated virtues of the two-sector AK model

We show that the two-sector version of the AK model proposed by Rebelo (1991) can be read as an endogenous growth extension of Greenwood, Hercowitz and Krusell (1997). By confining constant returns to capital to the investment goods sector, the model generates endogenously the secular downward trend of the relative price of equipment investment and the rising real investment rate observed in US NIPA data. Whereas Jones (1995) criticizes that the one-sector model fails to reconcile the empirical facts of trending real investment rates and stationary output growth, this incompatibility vanishes in the two-sector version. Finally, a simple technological shock can reproduce the ‘1974’ break in post World War II US data. Thus, AK-type endogenous growth models comply much better with empirical evidence, once they are augmented with a strictly concave consumption sector.AK model; embodiment; endogenous growth; obsolescence; ‘1974’

Endogenous Growth through Selection and Imitation

A simple dynamic general equilibrium model is set up in which firms face idiosyncratic productivity shocks. Firms whose productivity has fallen too low exit, and entrants try to imitate the best practice of existing firms, so that the expected productivity of entering firms is a function of current average productivity. Because of the resulting selection and imitation process, aggregate productivity grows endogenously. When calibrated to U.S. data, the model suggests that around one-fifth of productivity growth is due to such a selection and imitation effect.endogenous growth; selection; imitation; firm entry and exit