Resource booms in competitive equilibria with decreasing returns to scale

We are concerned with the effects of a resource boom upon the industries of a trading economy. Such effects have come to be known in the literature as Dutch Disease. We look into related supply-side aspects which appear to be significant if seen from the viewpoint of microeconomic general equilibrium theory under conditions of decreasing returns to scale in production. Several comparative-statics results will be presented for the small-country case where there may also exist nontraded goods. In particular, we argue that in the presence of diseconomies of scale input substitution becomes a crucial issue. We also briefly discuss welfare implications in terms of changes in factor prices and GNP.     

The Stolper-Samuelson theorem under decreasing returns to scale

The necessary and sufficient condition for the Stolper-Samuelson theorem is derived under decreasing returns to scale. This result is interpreted by separating a factor-intensity effect and a scale effect and by using the elasticities of substitution and the factor demand elasticities.     

Cross-border acquisitions from developing countries under decreasing returns to scale

Portuguese Economic Journal - We assume that a firm from a developing country wants to acquire a firm from a developed country with better technology. The acquirer, which may be a private firm or a...     

The multiplant firm with increasing returns to scale

The paper analyzes allocation among plants whose production is characterized by “nicely convex-concave production functions” (intended to fulfill the property of initial increasing returns to scale followed by subsequent decreasing returns to scale). Necessary conditions for optimal allocation are derived. The complete solution is given for the simplified case of identical plants, and examples show the various possibilities that may arise. The relative difficulty of solution for even the simplest case emphasizes the problem of applying our economic theories to the real world.     

Aggregate returns to scale in Greek manufacturing

This paper takes an imperfect competition model of the economy in order to investigate for retuns to scale in Greek manufacturing and examines, through a small-scale macroeconomic model, the implication of estimates. For this purpose a price, wage and demand for output equations are estimated, using annual data for the period 1954–94. Prices come through the profits maximization process and depend on wage, capital rental, demand and a number of other variables denoing technology and market competition. Results are clearly in favour of increasing returns to scale hypothesis, although alternative explanations for the negative demand effect on prices cannot be excluded.     

Increasing returns to scale and productive systems

We consider an economy in which some producers may have nonconvex technologies, in particular they may operate under increasing returns to scale. These producers constitute the I-part of the economy. The prices of all goods and the target supply of the I-part are supposed to be given. Each producer in the I-part produces a certain output in a cost-minimizing way. There is a planning board which has to find decentralizing (gross) output levels for the producers in the I-part such that the net output equals target supply. The existence of such output levels is proven under a productivity assumption which includes the case of strongly increasing returns to scale as well as productive Leontief systems.     

On the concepts of returns to scale

We clarify various concepts of returns to scale scattered in the literature by presenting their six different concepts. We find the global relationship among them and apply some of the results to determine the shape of the average cost curves.     

A cost function approach to the estimation of minimum efficient scale,returns to scale,and suboptimal capacity: With an application to Canadian manufacturing

This paper presents a new method for utilizing the statistical cost technique to measure minimum efficient scale (MES), returns to scale and suboptimal capacity. An application of the duality theory between cost and homothetic production functions leads to justification for ignoring poor quality or unavailable capital data and the pooling of several years observations to improve the efficiency of the estimates. The methodology is applied to 91 four-digit Canadian manufacturing industries to obtain estimates of MES, returns to scale, and suboptimal capacity. For a subsample of industries, we demonstrate that the cost function estimates of MES and returns to scale are more closely related to engineering estimates than are the ad hoc estimates usually found in the industrial organization literature.     

A solution to the Lucas–Uzawa model with increasing returns to scale: Note

Chilarescu [2008, An analytical solutions for a model of endogenous growth, Economic Modelling.] claims that he determines a solution path to the Lucas–Uzawa model with increasing returns to scale. However, the path is not a closed-form since it depends on the initial consumption and the initial time for goods production, that are unknown. Moreover, the production function is nonconcave and then the first order conditions and the transversality conditions are not sufficient for the optimality. This note converts the model to a problem in which the Hamiltonian is available and derives a fully-closed form solution.     

Indeterminacy with almost constant returns to scale: capital-labor substitution matters

Summary. This paper shows, in the benchmark one-sector Ramsey model, that indeterminacy and sunspots may occur when externalities are small, provided that capital and labor are more substitutable than in the usual Cobb-Douglas specification. Key to the results are the general formulations of both preferences and technology that we consider. In particular, indeterminacy is shown to occur under almost constant returns to scale provided that both concavity of utility for consumption is small enough and labor supply is close to indivisible. An important implication of the results is that, when labor supply is positively sloped, indeterminacy does not necessarily require the equilibrium wage-hours locus to be upward sloping.Received: 16 June 2004, Revised: 8 March 2005, JEL Classification Numbers: C62, D58, D91, E32.This is a companion paper of “Sunspots in real business-cycle models: completing calibration”, with new results that have emerged from extending the analysis contained in the latter article. The author would like to thank, without implicating, Bruno Decreuse, Andrew Postlewaite, Alain Venditti, Yi Wen, participants at the 2003 Society for Economic Dynamics Meeting, as well as C.D. Aliprantis, the Editor, and an anonymous referee for useful comments and suggestions.     

Real-time decentralized information processing and returns to scale

We use a model of real-time decentralized information processing to understand how constraints on human information processing affect the returns to scale of organizations. We identify three informational (dis)economies of scale: diversification of heterogeneous risks (positive), sharing of information and of costs (positive), and crowding out of recent information due to information processing delay (negative). Because decision rules are endogenous, delay does not inexorably lead to decreasing returns to scale. However, returns are more likely to be decreasing when computation constraints, rather than sampling costs, limit the information upon which decisions are conditioned. The results illustrate how information processing constraints together with the requirement of informational integration cause a breakdown of the replication arguments that have been used to establish nondecreasing technological returns to scale. November 24, 1999; revised version: March 14, 2000     

Game theoretic modeling of increasing returns to scale

This paper surveys the analysis, by means of cooperative game theory, of economies in which there are increasing returns to scale. In the first section necessary and sufficient conditions for the existence of a core of a general equilibrium economy are considered. In the second section, the partial equilibrium approach to increasing returns production, which developed along with the natural monopoly literature, is surveyed. The close relationship between the general equilibrium and partial equilibrium approaches is emphasized.     

Heterogeneity, returns to scale, and collective action

Abstract .  I analyze the effects of resource inequality and valuation heterogeneity on the provision of public goods with increasing or decreasing returns to scale in production. The existing literature typically takes the agents' characteristics as given and known to the researcher. In contrast, this paper compares collective action provision across groups of agents with resources and valuations for the public good drawn from different known joint distributions. Specifically, I characterize the expected equilibrium public good level as function of various distributional properties and moments. A resource-valuation distribution that first-order stochastically dominates another distribution always results in higher expected public good provision level, independent of the production technology. With decreasing returns to scale in the public good production, higher resource inequality results in higher expected provision. With increasing returns the same result holds when the mean resource level is relatively low, but expected provision decreases in inequality when the mean resource level is high. A parallel result holds for agents' valuations.     

Constant returns to scale and competitive equilibrium under uncertainty

This paper considers the implications of the assumption of constant returns to scale in expected utility maximizing models of the competitive firm or industry in which markets for risk are absent. Under widely used assumptions about risk preferences it is shown that with constant returns to scale average profits are more than necessary to cover the implicit costs of risk-bearing. When the free entry of identical firms is possible this assumption about technology is shown to be incompatible with the assumption that entrepreneurs are risk averse.     

Increasing returns to scale and the reverse flexible accelerator

We show that the flexible accelerator principle characterizes optimal investment behavior only when the firm's technology exhibits decreasing returns to scale throughout. When there are increasing returns we show that there is a range in which investment increases as the capital stock increases towards its long-run equilibrium level.     

Shadow prices in intertemporal plans under constant returns to scale

It has been shown, in connection with Tobin's ‘q’ theory of investment, that, under constant returns to scale and for interior solutions, the market value of a firm is its capital valued at the shadow price of capital. This result is here generalized to cover many fixed (and variable) factors and non-interior solutions.     

Unionization and distribution of income under variable returns to scale

Variable returns to scale are introduced into the two-sector analysis of unionization and income distribution, and some new results are obtained. Specifically, with increasing returns to scale it is possible for both union and non-union workers to lose (gain) from unionization even when the unionized sector is relatively capital (labor) intensive.     

Estimating global returns to scale with a cone-homogeneous production function: some cross-section results

This paper employs a cone-homogeneous production function to approximate, as closely as desired, a ray-homogeneous production function. Points in input space are projected by an output scaling function on to a fixed ray and a Cobb-Douglas cone function is used to obtain an estimate of global returns to scale. The empirical results indicate that we get a good approximation to a ray-homogeneous production function from the estimated cone-homogeneous function.