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

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)

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.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;

Capital utilization: maintenance costs and the business cycle

In this paper we analyze the role played by capacity utilization and maintenance costs in the propagation of aggregate fluctuations. To this purpose we use an extension of the general equilibrium stochastic growth model that incorporates a depreciation technology depending both upon capital utilization (depreciation in use assumption) and maintenance costs. In addition, we argue that the maintenance activity must be countercyclical, because it is cheaper for the firm to repair and maintain machines when they are stopped than when machines are being employed. We show that the propagation mechanism associated to our technology assumption is quantitatively important: the countercyclicality of maintenance costs contributes significantly to magnify and propagate aggregate fluctuations

Trade liberalization, competition and growth

The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a twocountry endogenous growth model, both countries producing the same set of goods, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same set of goods, trade openness makes markets more competitive, reducing prices and raising the incentives to innovate. More general, a reduction on trade barriers enhances growth by reducing domestic firms`market power

The Q theory of investment under unit root tests

We test a q investment model for Belgium using a multivariate cointegration approach. The introduccion of the degree of capacity utilization duc, in addition to investment and average q, is necessary to determine the cointegration space. This support the idea that marginal q differs from average q by a factor which is a function of duc, as suggested by Licandro(1992)