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

Antonio Ciccone and Kiminori Matsuyama

Econometrica, 1999, vol. 67, issue 3, 499-526

Abstract: When do dynamic nonconvexities at the disaggregate level translate into dynamic nonconvexities at the aggregate level? The authors 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 between differentiated inputs. In the simplest case, there are dynamic nonconvexities at the aggregate level if and only if differentiated inputs are Hicks-Allen complements. The authors also compare dynamic equilibrium and optimal allocations in the presence of aggregate dynamic nonconvexities due to Hicks-Allen complementarities between differentiated inputs.

Date: 1999
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Working Paper: Efficiency and Equilibrium with Dynamic Increasing Aggregate Returns Due to Demand Complementarities (1996)
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