Efficiency and equilibrium with dynamic increasing aggregate returns due to demand complementarities

Antonio Ciccone, Kiminori Matsuyama

Research output: Contribution to journalArticle

11 Scopus citations

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 we 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 if 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.

Original languageEnglish (US)
Pages (from-to)499-525
Number of pages27
JournalEconometrica
Volume67
Issue number3
DOIs
StatePublished - Jan 1 1999

Keywords

  • Dynamic equilibrium allocations
  • Dynamic inefficiencies
  • Dynamic nonconvexities at the aggregate level
  • Dynamic nonconvexities at the disaggregate level
  • Hicks-Allen complements (substitutes)
  • Optimal intertemporal allocations

ASJC Scopus subject areas

  • Economics and Econometrics

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