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The Paradoxical Fate of the Representative Firm

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  • Frank Schohl

Abstract

While modern theorising on the microfoundation of macroeconomics makes intense use of the representative firm notion, severe objections have been raised. Regarded from the history of thought this is the second time that its usefulness is called into question. The paper presents an old literature which has ended with the abandonment of the representative firm from competition theory because it neglects the innovation issue. It shows that its subsequent adoption to macroeconomics suffers from similar flaws. It follows that the representative firm is inappropriate for the analysis of modern competitive economies and should be withdrawn from macroeconomics as well.

Suggested Citation

  • Frank Schohl, 1998. "The Paradoxical Fate of the Representative Firm," Working Paper Series B 1998-03, Friedrich Schiller University of Jena, School of of Economics and Business Administration.
    • Handle: RePEc:jen:jenavo:1998-03
    as

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    References listed on IDEAS

    as
    1. Maarten C. W. Janssen, 1991. "What Is This Thing Called Microfoundations?," History of Political Economy, Duke University Press, vol. 23(4), pages 687-712, Winter.
    2. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    3. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    4. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
    5. Janssen, Maarten C.W., 1991. "The alleged necessity of microfoundations," Journal of Macroeconomics, Elsevier, vol. 13(4), pages 619-639.
    6. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
    7. James E. Hartley, 1996. "Retrospectives: The Origins of the Representative Agent," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 169-177, Spring.
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    More about this item

    Keywords

    microfoundation; representative agent; aggregation; innovation; competition; Marshall; Schumpeter;
    All these keywords.

    JEL classification:

    • B20 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - General
    • D00 - Microeconomics - - General - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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