Entry and the accumulation of capital: a two state-variable extension to the Ramsey model
In this paper we consider the entry and exit of firms in a dynamic general equilibrium model with capital. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size. Entry is determined by a free entry condition such that the costs of entry are equal to the present value of incumbent firms, the cost of entry (exit) depends on the flow of entry (exit). Then equilibrium is saddle-point stable and the stable manifold is two-dimensional. Transitional dynamics can, under certain circumstances, be non-monotonic.
|Date of creation:||Jun 2007|
|Date of revision:||Oct 2007|
|Publication status:||Published in International Journal of Economic Theory, , 5, 333-357|
|Contact details of provider:|| Postal: Aberconway Building, Colum Drive, CARDIFF, CF10 3EU|
Phone: +44 (0) 29 20874417
Fax: +44 (0) 29 20874419
Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Novshek, William & Sonnenschein, Hugo., 1983.
"General Equilibrium with Free Entry: A Synthetic Approach to the Theory of Perfect Competition,"
497, California Institute of Technology, Division of the Humanities and Social Sciences.
- Novshek, William & Sonnenschein, Hugo, 1987. "General Equilibrium with Free Entry: A Synthetic Approach to the Theory of Perfect Competition," Journal of Economic Literature, American Economic Association, vol. 25(3), pages 1281-1306, September.
- Ryder, Harl E, Jr, 1969. "Optimal Accumulation in a Two-Sector Neoclassical Economy with Non-Shiftable Capital," Journal of Political Economy, University of Chicago Press, vol. 77(4), pages 665-83, Part II, .
- Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
- Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
- Léonard,Daniel & Long,Ngo van, 1992.
"Optimal Control Theory and Static Optimization in Economics,"
Cambridge University Press, number 9780521331586, November.
- Léonard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521337465, November.
- Smith, Vernon L., 1974.
"Optimal costly firm entry in general equilibrium,"
Journal of Economic Theory,
Elsevier, vol. 9(4), pages 397-417, December.
- M. G. Myers & E. R. Weintraub, 1971. "A Dynamic Model of Firm Entry," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 127-129.
- Marta Aloi & Huw Dixon, .
"Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy,"
02/05, Department of Economics, University of York.
- Marta Aloi & Huw D. Dixon, 2002. "Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy," CESifo Working Paper Series 716, CESifo Group Munich.
- E. P. Howrey & R. E. Quandt, 1968. "The Dynamics of the Number of Firms in an Industry," Review of Economic Studies, Oxford University Press, vol. 35(3), pages 349-353.
- Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-96, August.
- Bipasa Datta & Huw Dixon, 2002. "Technological Change, Entry, and Stock-Market Dynamics: An Analysis of Transition in a Monopolistic Industry," American Economic Review, American Economic Association, vol. 92(2), pages 231-235, May.
- Koji Okuguchi, 1972. "A Dynamic Model of Firm Entry: Comment," Review of Economic Studies, Oxford University Press, vol. 39(4), pages 521-522.
- Hornstein, Andreas, 1993. "Monopolistic competition, increasing returns to scale, and the importance of productivity shocks," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 299-316, June.
- Bipasa Datta & Huw D. Dixon, 2002. "Technological Change, Entry and Stock Market Dynamics: An Analysis of Transition in a Monopolistic Economy," CESifo Working Paper Series 641, CESifo Group Munich.
When requesting a correction, please mention this item's handle: RePEc:cdf:wpaper:2007/16. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruce Webb)
If references are entirely missing, you can add them using this form.