Investment activity produces effects on two different economic variables. On the one hand, it adds to the existing productive capacity, on the other, it represents a component of demand. What is required for demand may not be required for accumulation, and viceversa. As a consequence different adjustment mechanisms have been put forward in the economic literature to make the two aspects of investment compatible to each other. In all cases, a distinction has been made between the fundamentally macroeconomic nature of the demand aspect, and the fundamentally microeconomic nature of the capacity-augmenting aspect. This paper tries to discuss the foundations of a non-perverse adjustment mechanism based on the internalisation of the demand aspect of investment. The adjustment mechanism discussed earlier is based on investment reacting to positive or negative excess aggregate demand. Once it is shown that a collectively efficient equilibrium can be reached even on an entirely arbitrary basis, one may set out to show that a behaviour which gets selected in a small population can be easily extended to a large one.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
2527.
Find related papers by JEL classification: E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Institutional; Evolutionary E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
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