Capacity Utilization under Increasing Returns to Scale

Wen, Yi

doi:10.1006/jeth.1998.2412

Cited by 234 publications

(275 citation statements)

References 42 publications

(77 reference statements)

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“…Equilibrium can be indeterminate even without externalities or increasing returns, which makes a sharp contrast to the models of sunspots such as Farmer (1994, 1996), Benhabib and Nishimura (1998), Farmer and Guo (1994), Perli (1998), Wen (1998), and Barinci and Chéron (2001). Our result is based on the fact that the Frisch no-shirking condition is downward sloping when income insurance is not perfect.…”

Section: Discussionmentioning

confidence: 93%

“…Since then, a lot of research has made a progress to modify the model of Benhabib and Farmer (1994) to obtain indeterminacy with a lower amount of externalities. Examples include, among others, the model with sector-specific externalities by Benhabib and Farmer (1996); the model with home production by Perli (1996); the two-sector model by Benhabib and Nishimura (1998); the model with variable capital utilization by Wen (1998); the monetary model with borrowing constraint by Barinci and Chéron (2001).…”

Section: Introductionmentioning

confidence: 99%

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Unemployment and Indeterminacy

Nakajima

2003

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractUsing an efficiency-wage model, we examine the relationship between indeterminacy and unemployment insurance. It is shown that the less unemployment insurance is, the more likely equilibrium is to be indeterminate. Equilibrium can be indeterminate even without externalities or increasing returns, which makes a sharp contrast to the recent literature on indeterminacy. Our result is based on the fact that the no-shirking condition with marginal utility of wealth kept constant is downward sloping when income insurance is not perfect.

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Section: Discussionmentioning

confidence: 93%

Section: Introductionmentioning

confidence: 99%

Unemployment and Indeterminacy

Nakajima

2003

SSRN Journal

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“…11 In addition, as argued by Corrado and Mattey (1997) and Burnside, Eichenbaum, and Rebelo (1995), capacity utilization seems to have pronounced cyclical variability. While Kydland and Prescott (1988) and Ambler and Paquet (1994) introduced respectively stochastic capital utilization and depreciation rate, other authors (as Wen (1998) and Harrison and Weder (2002)) extend the RBC models assuming capacity utilization to be a convex, increasing function of the depreciation rate.More recently, some macro models have employed adjustment costs proportional to the growth rate of investment (Christiano, Eichenbaum, and Evans (2005)). …”

Section: Measurement Error Depreciation and Capital Utilizationmentioning

confidence: 99%

“…In particular, output of a composite output good is given by the Cobb-Douglas production technology proposed by Wen (1998) …”

Section: Technologymentioning

confidence: 99%

Solow residuals without capital stocks

Burda

Severgnini

2014

Journal of Development Economics

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For more than fifty years, the Solow decomposition (Solow 1957) has served as the standard measurement of total factor productivity (TFP) growth in economics and management, yet little is known about its precision, especially when the capital stock is poorly measured. Using synthetic data generated from a prototypical stochastic growth model, we explore the quantitative extent of capital measurement error when the initial condition is unknown to the analyst and when capacity utilization and depreciation are endogenous. We propose two alternative measurements which eliminate capital stocks from the decomposition and significantly outperform the conventional Solow residual, reducing the root mean squared error in simulated data by as much as two-thirds. This improvement is inversely related to the sample size as well as proximity to the steady state. As an application, we compute and compare TFP growth estimates using data from the new and old German federal states.

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“…This contract is identical to the one presented in the full information equilibrium we emphasize. 8 See, for example, the works of Benhabib and Farmer (1996), Wen (1998), Perli (1998), Benhabib, Meng and Nishimura (2000), Clarida, Galí and Gertler (2000), Woodford (2003), Jaimovich (2007) and Bilbiie (2008 An outline of the paper is as follows: Section 2 describes the model and presents the family of compensation contracts we propose to study. It also details the precise circumstances under which equilibrium indeterminacy and instability arise.…”

Section: Introductionmentioning

confidence: 99%

Some unpleasant general equilibrium implications of executive incentive compensation contracts

Donaldson

Gershun

Giannoni

2013

Journal of Economic Theory

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe consider a simple variant of the standard real business cycle model in which shareholders hire a self-interested executive to manage the fi rm on their behalf. A generic family of compensation contracts similar to those employed in practice is studied. When compensation is convex in the fi rm's own dividend (or share price), a given increase in the fi rm's output generated by an additional unit of physical investment results in a more than proportional increase in the manager's income. Incentive contracts of suffi cient yet modest convexity are shown to result in an indeterminate general equilibrium, one in which business cycles are driven by self-fulfi lling fl uctuations in the manager's expectations that are unrelated to the economy's fundamentals. Arbitrarily large fl uctuations in macroeconomic variables may result. We also provide a theoretical justifi cation for the proposed family of contracts by demonstrating that they yield fi rst-best outcomes for specifi c parameter choices.

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Capacity Utilization under Increasing Returns to Scale

Cited by 234 publications

References 42 publications

Unemployment and Indeterminacy

Unemployment and Indeterminacy

Solow residuals without capital stocks

Some unpleasant general equilibrium implications of executive incentive compensation contracts

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