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Dynamic coalitions, growth, and the firm


  • Edward C. Prescott
  • John H. Boyd


The implications of a dynamic coalition production technology are explored. With this technology, coalitions produce the current period consumption good as well as coalition-specific capital which is embodied in young coalition members. The equilibrium allocation is efficient and displays constant growth rates, even though exogenous technological change is not a feature of the environment. Unlike the neoclassical growth model, policies which influence agents’ investment-consumption decisions affect not only the level of output, but also its constant growth rate. In addition to these growth entailments, the theory has equally important industrial organization implications. Specifically, in equilibrium there is no tendency for coalition (firm) size to regress to the mean or for the distribution of coalition sizes to become more disparate.

Suggested Citation

  • Edward C. Prescott & John H. Boyd, 1986. "Dynamic coalitions, growth, and the firm," Staff Report 100, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:100

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    References listed on IDEAS

    1. Sherwin Rosen, 1972. "Learning by Experience as Joint Production," The Quarterly Journal of Economics, Oxford University Press, vol. 86(3), pages 366-382.
    2. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    3. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-461, June.
    4. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
    5. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321-321.
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    Cited by:

    1. Ross Levine, 1990. "Stock markets, growth, and policy," International Finance Discussion Papers 374, Board of Governors of the Federal Reserve System (U.S.).
    2. Timo Baas & Mechthild Schrooten, 2006. "‘Relationship Banking and SMEs: A Theoretical Analysis’," Small Business Economics, Springer, vol. 27(2), pages 127-137, October.
    3. Stephen L. Parente & Edward C. Prescott, 1991. "Technology Adoption and Growth," NBER Working Papers 3733, National Bureau of Economic Research, Inc.
    4. Stacey L. Schreft & Anne P. Villamil, 1990. "Liquidity constraints in commercial loan markets with imperfect information and imperfect competition," Working Paper 90-10, Federal Reserve Bank of Richmond.

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