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Q investment models, factor complementary and monopolistic competition

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  • Licandro, Omar

Abstract

The observed fact that firms invest even if capacities are not fully employed does not fit well into most standard formalizations of optimal firm behavior. In this paper, the q investment approach is adapted to an imperfectly 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 which makes it more than a shortrun phenomenon

Suggested Citation

  • Licandro, Omar, 1991. "Q investment models, factor complementary and monopolistic competition," UC3M Working papers. Economics 2794, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:2794
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    References listed on IDEAS

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    Cited by:

    1. Jean-Bernard Chatelain, 1999. "Taux de marge et structure financière," Annals of Economics and Statistics, GENES, issue 53, pages 127-147.
    2. Martial Dupaigne, 2000. "Capital Utilization and the Willingness to Rest: A General Equilibrium Analysis," Econometric Society World Congress 2000 Contributed Papers 0391, Econometric Society.
    3. 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.

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