Efficiency and Equilibrium with Dynamic Increasing Aggregate Returns Due to Demand Complementarities
AbstractWhen do dynamic nonconvexities at the disaggregate level translate into dynamic nonconvexities at the aggregate level? We address this question in a framework where the production of differentiated intermediate inputs is subject to dynamic nonconvexities and show that the answer depends on the degree of Hicks-Allen complementarity (substitutability) between differentiated inputs. In our simplest model, a generalization of Judd (1985) and Grossman and Helpman (1991) among many others, there are dynamic nonconvexities at the aggregate level if and only differentiated inputs are Hicks-Allen complements. We also compare dynamic equilibrium and optimal allocations in the presence of aggregate dynamic nonconvexities due to Hicks-Allen complementarities between differentiated inputs.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1219.
Date of creation: Jan 1996
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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- Antonio Ciccone & Kiminori Matsuyama, 1999. "Efficiency and Equilibrium with Dynamic Increasing Aggregate Returns Due to Demand Complementarities," Econometrica, Econometric Society, vol. 67(3), pages 499-526, May.
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