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Investment Dynamics and Capacity Utilization under Monopolistic Competition

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  • Omar Licandro

Abstract

In the tradition of Tobin's q models, the influence on investment of demand uncertainty and capacity constraints is analyzed in a monopolistically competitive economy. Under these conditions, the degree of capacity utilization has a positive effect on the markup rate and explains the difference between average q and marginal q. In the aggregate economy, when the representative firm faces only specific demand uncertainty, it is shown that the degree of capacity utilization is strictly smaller than one at steady state. Expected changes in aggregate demand or in demand price elasticity are shown to accelerate the accumulation process.

Suggested Citation

  • Omar Licandro, 1992. "Investment Dynamics and Capacity Utilization under Monopolistic Competition," Annals of Economics and Statistics, GENES, issue 27, pages 91-113.
    • Handle: RePEc:adr:anecst:y:1992:i:27:p:91-113
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    File URL: http://www.jstor.org/stable/20075876
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    Cited by:

    1. David De la Croix & O. Licandro, 1993. "The q theory of investment under unit root tests," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 139, pages 329-339.
    2. Croix, David de la & Licandro, Omar, 1993. "Underemployment and capital irreversivility in a unionized overlaping generations economy," UC3M Working papers. Economics 2903, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Plassard, Romain & Renault, Matthieu, 2023. "General equilibrium models with rationing: The making of a ‘European specialty’," European Economic Review, Elsevier, vol. 159(C).
    4. Anne Epaulard, 1993. "L'apport du Q de Tobin à la modélisation de l'investissement en France," Économie et Prévision, Programme National Persée, vol. 109(3), pages 1-12.
    5. Fagnart, Jean-François & De La Croix, David, 1993. "Underemployment of labour and equipment in a bargaining model with forward-looking behavior," CEPREMAP Working Papers (Couverture Orange) 9315, CEPREMAP.
    6. de la Croix, David & Fagnart, Jean-Francois, 1995. "Underemployment of production factors in a forward-looking model," Labour Economics, Elsevier, vol. 2(2), pages 131-159, June.
    7. Zhang, Liang & Ruan, Jian & Ding, Jianhua, 2014. "The institutional power shortage in China: Capacity shortage or capacity under-utilisation?," Applied Energy, Elsevier, vol. 136(C), pages 480-494.

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