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Q Investment Models, Factor Complementarity and Monopolistic Competition

  • Omar Licandro (a1)

Summary

The observed fact that firms invest even if capacities are not fully employed does not fit into most standard formalizations of optimal firm behaviour. In this paper, the q investment approach is adapted to an imperfect 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 being more than a short-run phenomena.

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Keywords

Q Investment Models, Factor Complementarity and Monopolistic Competition

  • Omar Licandro (a1)

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