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An Overlapping-Generations Model of Firm Heterogeneity in Economic Development

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  • Chen, Yu
  • Zhou, Haiwen

Abstract

We study firm heterogeneity in economic development in an overlapping-generations general equilibrium model in which manufacturing firms engage in oligopolistic competition. Individuals differ in their productivities in the manufacturing sector and choose to become entrepreneurs or workers. The model is surprisingly tractable. In the steady state, an increase in the entry barrier in the manufacturing sector or an increase in the percentage of income spent on the agricultural good decreases the wage rate, but the level of output in the manufacturing sector does not necessarily decrease. An increase in the degree of patience of an individual increases the steady state wage rate and the capital stock. Even with increasing returns in manufacturing and constant returns in agriculture, neither the wage rate nor the output level in the manufacturing sector may increase with the size of the population.

Suggested Citation

  • Chen, Yu & Zhou, Haiwen, 2017. "An Overlapping-Generations Model of Firm Heterogeneity in Economic Development," MPRA Paper 83206, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:83206
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    More about this item

    Keywords

    Firm heterogeneity; overlapping-generations model; oligopolistic competition; career choice; economic development;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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