Efficiency and Equilibrium with Dynamic Increasing Aggregate Returns due to Demand Complementarities

Equity, Efficiency and Increasing Returns

Increasing Returns and Economic Efficiency

This paper argues that, from the viewpoint of Pareto optimality, the industries with increasing returns are under-expanded relative to those without increasing returns and those with higher degrees of increasing returns are under-expanded relative to those with lower degrees. Ignoring administrative and indirect (such as rent-seeking) costs, subsidies on goods produced under conditions of (high...

Public services , increasing returns , and equilibrium dynamics

This paper is concerned with casting o! the standard assumption } the production function displays socially constant returns to scale } in a simple growth model with public inputs. In the model, public services work as a source of utility and as an input to production. Making use of the global bifurcation technique, we show that the model can generate a whole spectrum of interesting dynamics, w...

Aggregate Demand Management and Equilibrium Selection

We study optimal government policy in an economy where (i) search frictions create a coordination problem and generate multiple, Pareto-ranked equilibria and (ii) the government finances the provision of a public good by taxing trade. The government must choose the tax rate before it knows which equilibrium will obtain, and therefore an important part of the problem is determining how the polic...

Inducing efficiency in oligopolistic markets with increasing returns to scale

We consider a Cournot Oligopoly market of firms possessing increasing returns to scale technologies (which may not be identical). It is shown that an external regulating agency can increase total social welfare without running a deficit by offering to subsidize one firm an amount which depends on the output level of that firm and the market price. The firms bid for this contract, the regulator ...