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Entry and the accumulation of capital: a two state-variable extension to the Ramsey model

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Author Info
Brito, Paulo
Dixon, Huw () (Cardiff Business School)

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Abstract

In this paper we consider the entry and exit of firms in a dynamic general equilibrium model with capital. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size. Entry is determined by a free entry condition such that the costs of entry are equal to the present value of incumbent firms, the cost of entry (exit) depends on the flow of entry (exit). Then equilibrium is saddle-point stable and the stable manifold is two-dimensional. Transitional dynamics can, under certain circumstances, be non-monotonic.

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File URL: http://www.cardiff.ac.uk/carbs/econ/workingpapers/papers/E2007_16.pdf
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Publisher Info
Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2007/16.

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Length: 60 pages
Date of creation: Jun 2007
Date of revision: Oct 2007
Handle: RePEc:cdf:wpaper:2007/16

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Related research
Keywords: Entry dynamics Ramsey

Find related papers by JEL classification:
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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