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Investment Coordination and Demand Complementarities

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  • Jean-Marie Baland
  • Patrick Fracois

Abstract

This paper analyzes the possibility of investment coordination leading to outcomes which dominate non-investment equilibria in the presence of monopolistic competition. We establish when complementarity leads to investment coordination failures and explore the welfare implications of coordinated investment. Our main results caution against demand complementarities as a motive for investment coordination. We find that: 1) generally, a strict notion of complementarity (Hicks) is necessary for the existence of an investment coordination problem and 2) that when the problem does exist, coordination often lowers social welfare.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_933.pdf
File Function: First version 1996
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 933.

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Length: 22 pages
Date of creation: Oct 1996
Date of revision:
Handle: RePEc:qed:wpaper:933

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Cited by:
  1. Baland, Jean-Marie & Francois, Patrick, 2000. "Rent-seeking and resource booms," Journal of Development Economics, Elsevier, vol. 61(2), pages 527-542, April.

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