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The firm and the plant in general equilibrium theory

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  • Andreas Hornstein
  • Edward C. Prescott

Abstract

The general equilibrium formulations are developed for two important economic environments. The first environment is the Lucas managerial span-of-control theory of the firm. It is shown that, in the spirit of McKenzie, the aggregate production set can be characterized by a convex cone. The second environment permits both the number of hours plants are operated and the number of workers operating them to be varied. For empirically reasonable elasticities of substitution, equilibrium is characterized by employment-consumption lotteries.

Suggested Citation

  • Andreas Hornstein & Edward C. Prescott, 1989. "The firm and the plant in general equilibrium theory," Staff Report 126, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:126
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    References listed on IDEAS

    as
    1. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    2. Prescott, Edward C & Townsend, Robert M, 1984. "General Competitive Analysis in an Economy with Private Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 1-20, February.
    3. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    4. Mas-Colell, Andreu, 1975. "A model of equilibrium with differentiated commodities," Journal of Mathematical Economics, Elsevier, vol. 2(2), pages 263-295.
    5. McKenzie, Lionel W, 1981. "The Classical Theorem on Existence of Competitive Equilibrium," Econometrica, Econometric Society, vol. 49(4), pages 819-841, June.
    6. Harald Uhlig, 1996. "A law of large numbers for large economies (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 41-50.
    7. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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    Citations

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    Cited by:

    1. Terry J. Fitzgerald, 1998. "Reducing working hours: a general equilibrium analysis," Working Papers (Old Series) 9801, Federal Reserve Bank of Cleveland.
    2. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Papers (Old Series) 9312, Federal Reserve Bank of Cleveland.
    3. Chari, V V & Christiano, Lawrence J & Eichenbaum, Martin, 1995. "Inside Money, Outside Money, and Short-Term Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1354-1386, November.
    4. Parente, Stephen L. & Prescott, Edward C., 2005. "A Unified Theory of the Evolution of International Income Levels," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 21, pages 1371-1416, Elsevier.
    5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
    6. Ayse Imrohoroglu & Edward C. Prescott, 1991. "Seigniorage as a tax: a quantitative evaluation," Proceedings, Federal Reserve Bank of Cleveland, pages 462-482.
    7. Antonio García Sánchez & María del Mar Vázquez Méndez, 2005. "The timing of work in a general equilibrium model with shiftwork," Investigaciones Economicas, Fundación SEPI, vol. 29(1), pages 149-179, January.
    8. Prescott, Edward C. & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Journal of Economic Theory, Elsevier, vol. 107(1), pages 1-10, November.
    9. Edward C. Prescott, 2002. "Prosperity and Depression: 2002 Richard T. Ely Lecture," Working Papers 618, Federal Reserve Bank of Minneapolis.
    10. Andrés Erosa & Luisa Fuster & Gueorgui Kambourov, 2016. "Towards a Micro-Founded Theory of Aggregate Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(3), pages 1001-1039.
    11. Terry J. Fitzgerald, 1998. "Work Schedules, Wages and Employment in a General Equilibrium Model with Team Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 809-834, October.
    12. Ayse Imrohoroglu & Edward C. Prescott, 1991. "Evaluating the welfare effects of alternative monetary arrangements," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 15(Sum), pages 3-10.
    13. Bianconi, Marcelo, 2008. "Heterogeneity, adverse selection and valuation with endogenous labor supply," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 113-126.
    14. Gary D. Hansen & Edward C. Prescott, 2005. "Capacity constraints, asymmetries, and the business cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 850-865, October.
    15. Edward C. Prescott & Richard Rogerson & Johanna Wallenius, 2009. "Lifetime Aggregate Labor Supply with Endogenous Workweek Length," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 23-36, January.
    16. Victoria Osuna & Jose-Victor Rios-Rull, 2003. "Implementing the 35 Hour Workweek by Means of Overtime Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 179-206, January.
    17. Edward Simpson Prescott & Robert M. Townsend, 2006. "Firms as Clubs in Walrasian Markets with Private Information," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 644-671, August.
    18. Stephen L. Parente & Edward C. Prescott, 1991. "Technology Adoption and Growth," NBER Working Papers 3733, National Bureau of Economic Research, Inc.
    19. Alexander Ueberfeldt, 2006. "Working Time over the 20th Century," Staff Working Papers 06-18, Bank of Canada.
    20. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, vol. 92(2), pages 1-15, May.
    21. Jean-François Fagnart & Omar Licandro & Franck Portier, 1999. "Firm Heterogeneity, Capacity Utilization and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 433-455, April.

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    Keywords

    Labor productivity; Business enterprises;

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