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Dynamic coalitions, growth, and the firm

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  • Edward C. Prescott
  • John H. Boyd

Abstract

The implications of a dynamic coalition production technology are explored. With this technology, coalitions produce the current period consumption good as well as coalition-specific capital which is embodied in young coalition members. The equilibrium allocation is efficient and displays constant growth rates, even though exogenous technological change is not a feature of the environment. Unlike the neoclassical growth model, policies which influence agents’ investment-consumption decisions affect not only the level of output, but also its constant growth rate. In addition to these growth entailments, the theory has equally important industrial organization implications. Specifically, in equilibrium there is no tendency for coalition (firm) size to regress to the mean or for the distribution of coalition sizes to become more disparate.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 100.

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Date of creation: 1986
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Publication status: Published in Minnesota Studies in Macroeconomic Series (Vol. 1, 1987, pp. 146-160) ; American Economic Review (Vol. 77, No. 2, May 1987, pp. 63-67)
Handle: RePEc:fip:fedmsr:100

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  1. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
  2. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  3. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
  4. Rosen, Sherwin, 1972. "Learning by Experience as Joint Production," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 366-82, August.
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Cited by:
  1. Timo Baas & Mechthild Schrooten, 2006. "‘Relationship Banking and SMEs: A Theoretical Analysis’," Small Business Economics, Springer, vol. 27(2), pages 127-137, October.
  2. Ross Levine, 1990. "Stock markets, growth, and policy," International Finance Discussion Papers 374, Board of Governors of the Federal Reserve System (U.S.).
  3. Stephen L. Parente & Edward C. Prescott, 1991. "Technology adoption and growth," Staff Report 136, Federal Reserve Bank of Minneapolis.
  4. S.L. Schreft & A.P. Villamil, 1990. "Liquidity constraints in commercial loan markets with imperfect information and imperfect competition," Working Paper 90-10, Federal Reserve Bank of Richmond.

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