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Q investment models, factor complementary and monopolistic competition

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URI: https://hdl.handle.net/10016/2794
ISSN: 2340-5031
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we9110.pdf (629.62 KB)
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1991-02
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Abstract
The observed fact that firms invest even if capacities are not fully employed does not fit well into most standard formalizations of optimal firm behavior. In this paper, the q investment approach is adapted to an imperfectly competitive economy where the representative firm is assumed to face demand uncertainty. Nominal rigidities and short-run factor complementarity are imposed as sufficient conditions to allow for the coexistence of investment and excess capacity. Since capacities are underemployed, marginal q is shown to diverge from average q. Finally, excess capacity subsists at steady state which makes it more than a shortrun phenomenon
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Tobin's q, Investment, Monopolistic Competition, Quantity Rationing Model
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DE - Working Papers. Economics. WE
Economists Online