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Implementation Cycles


  • Shleifer, Andrei


The paper describes an artificial economy in which firms in different sectors make inventions at different times but innovate simultaneously to take advantage of high aggregate demand. In turn, high demand results from simultaneous innovation in many sectors. The economy exhibits multiple cyclical equilibria, with entrepreneurs' expectations determining which equilibrium obtains. These equilibria are Pareto ranked, and the most profitable equilibrium need not be the most efficient. While an informed stabilization policy can sometimes raise welfare, if large booms are necessary to cover fixed costs of innovation, stabilization policy can stop all technological progress.
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  • Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-1190, December.
  • Handle: RePEc:ucp:jpolec:v:94:y:1986:i:6:p:1163-90

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    References listed on IDEAS

    1. Wright, Brian D & Williams, Jeffrey C, 1982. "The Economic Role of Commodity Storage," Economic Journal, Royal Economic Society, vol. 92(367), pages 596-614, September.
    2. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    3. Kohn, Meir, 1978. "Competitive Speculation," Econometrica, Econometric Society, vol. 46(5), pages 1061-1076, September.
    4. David M. G. Newbery & Joseph E. Stiglitz, 1984. "Pareto Inferior Trade," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 1-12.
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