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

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  • Brito, Paulo
  • Dixon, Huw David

    ()
    (Cardiff Business School)

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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Bibliographic 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
Publication status: Published in International Journal of Economic Theory, , 5, 333-357
Handle: RePEc:cdf:wpaper:2007/16

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Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
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Keywords: Entry; dynamics; Ramsey;

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Cited by:
  1. Pedro Gil, 2013. "Animal spirits and the composition of innovation in a lab-equipment R&D model with transition," Journal of Economics, Springer, Springer, vol. 108(1), pages 1-33, January.
  2. Pedro Rui Mazeda Gil & Paulo Brito & Óscar Afonso, 2008. "A Model of Quality Ladders with Horizontal Entry," FEP Working Papers, Universidade do Porto, Faculdade de Economia do Porto 296, Universidade do Porto, Faculdade de Economia do Porto.
  3. Brito, Paulo B. & Costa, Luís F. & Dixon, Huw, 2013. "Non-smooth dynamics and multiple equilibria in a Cournot–Ramsey model with endogenous markups," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(11), pages 2287-2306.
  4. Brito, Paulo & Dixon, Huw David, 2012. "Fiscal policy, entry and capital accumulation: hump-shaped responses," Cardiff Economics Working Papers E2012/7, Cardiff University, Cardiff Business School, Economics Section.

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