Sep 21, 2013

Articles in journals

Dixon, H., Brito, P.

37

32

In this paper we consider the entry and exit of firms in a Ramsey model with capital and an endogenous labour supply. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size. The costs of entry (exit) are quadratic in the flow of new firms. The number of firms becomes a second state variable and the entry dynamics gives rise to a richer set of dynamics than in the standard case: in particular, there is likely to be a hump shaped response of output to a fiscal shock with maximum effect after impact and before steady state is reached. Output and capital per firm are also likely to be hump shaped.

Entry,Ramsey,Fiscal policy,Macroeconomic dynamics