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Shirking and capital accumulation under oligopolistic competition

Author

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  • Haiwen Zhou
  • Ruhai Zhou

Abstract

Purpose - The purpose of the paper is to study how technology choice is affected by capital accumulation when there is unemployment and firms engage in oligopolistic competition. Design/methodology/approach - In this infinite horizon model, unemployment results from the existence of efficiency wages. Consumers choose saving optimally, and there is capital accumulation. Firms producing intermediate goods engage in oligopolistic competition and choose technologies to maximize profits. A more advanced technology has a higher fixed cost but a lower marginal cost of production. Findings - In the steady state, it is shown that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. Interestingly, the equilibrium unemployment rate decreases with the size of the population. Originality/value - In this model, unemployment results from the existence of efficiency wages and firms engage in oligopolistic competition. One difficulty with efficiency wage models is that saving is not allowed. However, in this model, consumers choose saving optimally, and capital accumulation is allowed. With oligopolistic competition, the authors show that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. The equilibrium unemployment rate decreases with the size of the population.

Suggested Citation

  • Haiwen Zhou & Ruhai Zhou, 2023. "Shirking and capital accumulation under oligopolistic competition," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 51(2), pages 394-407, September.
    • Handle: RePEc:eme:jespps:jes-12-2022-0647
    DOI: 10.1108/JES-12-2022-0647
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    References listed on IDEAS

    as
    1. Haiwen Zhou, 2011. "Confucianism and the Legalism: A model of the national strategy of governance in ancient China," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(4), pages 616-637, December.
    2. Chu, Angus C. & Ji, Lei, 2016. "Monetary Policy And Endogenous Market Structure In A Schumpeterian Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 20(5), pages 1127-1145, July.
    3. Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
    4. Haiwen Zhou, 2018. "Impact of international trade on unemployment under oligopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(4), pages 365-379, May.
    5. Lei Wen & Haiwen Zhou, 2020. "Technology Choice, Financial Sector and Economic Integration Under the Presence of Efficiency Wages," Open Economies Review, Springer, vol. 31(1), pages 95-112, February.
    6. Huanlang He & Zhihao Yu, 2015. "The evolving patterns of global production of multi‐product firms," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(3), pages 1175-1194, August.
    7. Kimball, Miles S, 1994. "Labor-Market Dynamics When Unemployment is a Worker Discipline Device," American Economic Review, American Economic Association, vol. 84(4), pages 1045-1059, September.
    8. Haiwen Zhou, 2004. "The division of labor and the extent of the market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 195-209, July.
    9. Ji, Lei & Seater, John J., 2020. "The Dance Of The Dynamics: The Interplay Of Trade And Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 24(3), pages 479-537, April.
    10. Lin Liu & X. Henry Wang, 2010. "Free Entry in a Cournot Market with Imperfectly Substituting Goods," Economics Bulletin, AccessEcon, vol. 30(3), pages 1935-1941.
    11. Haiwen Zhou, 2009. "Population Growth And Industrialization," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 249-265, April.
    12. Haiwen Zhou, 2020. "Monitoring Intensity and Technology Choice in a Model of Unemployment," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 46(3), pages 504-520, June.
    13. Binglin Gong & Haiwen Zhou, 2014. "Financial development, the choice of technology, and comparative advantage," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(8), pages 1238-1261, December.
    14. Brecher, Richard A. & Chen, Zhiqi & Choudhri, Ehsan U., 2010. "A dynamic model of shirking and unemployment: Private saving, public debt, and optimal taxation," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1392-1402, August.
    15. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
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    More about this item

    Keywords

    Unemployment; Increasing returns to scale; Capital accumulation; Technology choice; Oligopolistic competition; E24; J64; L13; O14;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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