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Q Investment Models, Factor Complementarity and Monopolistic Competition

Published online by Cambridge University Press:  17 August 2016

Omar Licandro
Omar Licandro*
Affiliation:
Universidad Carlos III de Madrid
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Summary

The observed fact that firms invest even if capacities are not fully employed does not fit into most standard formalizations of optimal firm behaviour. In this paper, the q investment approach is adapted to an imperfect 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 being more than a short-run phenomena.

Résumé

Résumé

La plupart des modèles standard de comportement optimal pour les firmes ne permettent pas de tenir compte du fait (observé) que les firmes investissent même si leurs capacités sont sous-utilisées. Dans cet article, le modèle d’investissement q est adapté à une économie en concurrence imparfaite, où la firme représentative est confronté à une demande incertaine. On impose des rigidités nominales et une complémentarité à court terme des facteurs comme conditions suffisantes pour que coexistent investissement et capacités excédentaires. On montre alors que, puisque les capacités sont sous-employées, le q marginal diffère du q moyen. Enfin, l’excès de capacités n’est pas qu’un phénomène de court terme mais subsiste à l’équilibre de long terme.

Keywords

023522023522
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 58 , Issue 1 , 1992 , pp. 51 - 73
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1992 

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Footnotes

(*)

I thank Ch. Arnsperger, D. de la Croix, Ph. De Villé, J. Drèze, J.P. Lambert, P. Malgrange and H. Sneessens for helpful conversations. They should not be held responsible for any mistakes. This paper is part of the IRES Research Program. Financial support of the Fonds de Développement Scientifique of the Université Catholique de Louvain is gratefully acknowledged.

References

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