Endogenous business cycles and business formation with strategic investment

d’ASPREMONT, Claude, Rodolphe Dos Santos Ferreira and Louis-André Gérard-Varet
Authors registered in the RePEc Author Service: Claude d'Aspremont

No 2000053, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We study an endogenous business cycle model with Cournotian monopolistic competition and an endogenous number of firms in each sector. Our model is a simple general equilibrium macroeconomic model introducing overlapping generations both of consumers and firms. Firms strategically decide on investment in the first period of their life, and compete ' la Cournot in the second period. Investment is taken to be a in human capital or technological know-how, to have spillover effects and to be formed from simple labour supplied by young consumers in anticipation of the profit share they get when old. It is Cournot competition that allows to analyze the variation of monopoly power along the cyle, since the number of firms is endogenized. As this number increases, firms behave more and more competitively. The properties along the cycle are generated by business formation. They will include the counter-cyclicality of markups and prices, the pro-cyclicality of the number of firms and of real wages.

Date: 2000-11
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Citations: View citations in EconPapers (3)

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