Capitalizing Implementation Cycles

Michail E. Rousakis
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Michail E. Rousakis: University of Warwick

No 1184, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: Building on Shleifer (1986), capital is introduced to a world with temporary monopolies and no uncertainty, where agents share the same expectations about future and have perfect foresight. It is subsequently shown that, although firms acquire patents at an exogenous, perfectly smooth rate, they may coordinate and implement these simultaneously if their expectations are accordingly formed, due to the presence of strategic complementarities. Then the economy can still grow in cycles, although investment is fully reversible and a storable commodity present, and, despite agents being able to perfectly borrow against their future earnings. This permits the study of the evolution of aggregate economic magnitudes along the balanced growth path under temporary monopolies. Most notably, capital-specific investment is shown to be countercyclical.

Date: 2010
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