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Efficiency and Equilibrium with Dynamic Increasing Aggregate Returns Due to Demand Complementarities

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  • Antonio Ciccone
  • Kiminori Matsuyama

Abstract

When 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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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1219.

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Date of creation: Jan 1996
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Handle: RePEc:nwu:cmsems:1219

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Cited by:
  1. Daron Acemoglu & Simon Johnson & James Robinson, 2002. "The Rise of Europe: Atlantic Trade, Institutional Change and Economic Growth," NBER Working Papers 9378, National Bureau of Economic Research, Inc.
  2. Giancarlo Marini & Pietro Senesi, 2004. "Multiplicity of Dynamic Equilibria and Global Efficiency," CEIS Research Paper 57, Tor Vergata University, CEIS.
  3. Kim, Jinill, 2004. "What determines aggregate returns to scale?," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1577-1594, June.
  4. Gino Gancia & Fabrizio Zilibotti, 2005. "Horizontal Innovation in the Theory of Growth and Development," Working Papers 200, Barcelona Graduate School of Economics.
  5. Ortigueira, Salvador, 2003. "Equipment prices, human capital and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 307-329, November.
  6. Olivier Bruno & Cuong Le Van & Beno�t Masquin, 2008. "When Does a Developing Country Use New Technologies?," Working Papers 12, Development and Policies Research Center (DEPOCEN), Vietnam.
  7. Ortigueira, Salvador, 2006. "Skills, search and the persistence of high unemployment," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2165-2178, November.
  8. Murata, Yasusada, 2002. "Rural-urban interdependence and industrialization," Journal of Development Economics, Elsevier, vol. 68(1), pages 1-34, June.

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