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Efficiency and Equilibrium with Dynamic Increasing Aggregate Returns Due to Demand Complementarities

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  • Antonio Ciccone
  • Kiminori Matsuyama

Abstract

When do dynamic nonconvexities at the disaggregate level translate into dynamic nonconvexities at the aggregate level? We address this question in a framework where the production of differentiated intermediate inputs is subject to dynamic nonconvexities and show that the answer depends on the degree of Hicks-Allen complementarity (substitutability) between differentiated inputs. In our simplest model, a generalization of Judd (1985) and Grossman and Helpman (1991) among many others, there are dynamic nonconvexities at the aggregate level if and only differentiated inputs are Hicks-Allen complements. We also compare dynamic equilibrium and optimal allocations in the presence of aggregate dynamic nonconvexities due to Hicks-Allen complementarities between differentiated inputs.

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  • Antonio Ciccone & Kiminori Matsuyama, 1996. "Efficiency and Equilibrium with Dynamic Increasing Aggregate Returns Due to Demand Complementarities," Discussion Papers 1219, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1219
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    Cited by:

    1. Olivier Bruno & Cuong Van & Benoît Masquin, 2009. "When does a developing country use new technologies?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 275-300, August.
    2. Ortigueira, Salvador, 2003. "Equipment prices, human capital and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 307-329, November.
    3. Gancia, Gino & Zilibotti, Fabrizio, 2005. "Horizontal Innovation in the Theory of Growth and Development," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 3, pages 111-170, Elsevier.
    4. Daron Acemoglu & Simon Johnson & James Robinson, 2005. "The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth," American Economic Review, American Economic Association, vol. 95(3), pages 546-579, June.
    5. Yasusada Murata, 2009. "On the Number and the Composition of Varieties," Economic Journal, Royal Economic Society, vol. 119(539), pages 1065-1087, July.
    6. Yannis M. Ioannides, 1999. "Neighborhood Interactions in Local Communities and Intergenerational Transmission of Human Capital," Discussion Papers Series, Department of Economics, Tufts University 9911, Department of Economics, Tufts University.
    7. Ortigueira, Salvador, 2006. "Skills, search and the persistence of high unemployment," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2165-2178, November.
    8. Murata, Yasusada, 2002. "Rural-urban interdependence and industrialization," Journal of Development Economics, Elsevier, vol. 68(1), pages 1-34, June.
    9. R. F. Hartl & P. M. Kort & G. Feichtinger & F. Wirl, 2004. "Multiple Equilibria and Thresholds Due to Relative Investment Costs," Journal of Optimization Theory and Applications, Springer, vol. 123(1), pages 49-82, October.
    10. Kim, Jinill, 2004. "What determines aggregate returns to scale?," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1577-1594, June.
    11. Giancarlo Marini & Pietro Senesi, 2004. "Multiplicity of Dynamic Equilibria and Global Efficiency," CEIS Research Paper 57, Tor Vergata University, CEIS.

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