We explore the nexus of market power, innovation and financial fragility by means of a macroeconomic agent based model whose core is the Dixit-Greenwald-Stiglitz (DGS) theory of firm behaviour, which nests the Greenwald-Stiglitz characterization of the firm as a borrower that runs the risk of bankruptcy in the Dixit-Stiglitz monopolistic competition setting. The optimal firm's size is increasing with net worth and productivity. Net worth increases with profits while productivity increases through R&D and innovation. Simulations show that in the presence of market power firms are more innovative and financially robust and less prone to bankruptcy. These features have not surfaced so far in standard characterizations of monopolistic competition.

Delli Gatti, D., Gallegati, M., Palestrini, A., Tedeschi, G., Vidal-Tomas, D., Market power, technical progress and financial fragility, <<JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION>>, 2024; 217 (gennaio): 435-452. [doi:10.1016/j.jebo.2023.10.037] [https://hdl.handle.net/10807/306017]

Market power, technical progress and financial fragility

Delli Gatti, Domenico
Co-primo
Membro del Collaboration Group
;
2024

Abstract

We explore the nexus of market power, innovation and financial fragility by means of a macroeconomic agent based model whose core is the Dixit-Greenwald-Stiglitz (DGS) theory of firm behaviour, which nests the Greenwald-Stiglitz characterization of the firm as a borrower that runs the risk of bankruptcy in the Dixit-Stiglitz monopolistic competition setting. The optimal firm's size is increasing with net worth and productivity. Net worth increases with profits while productivity increases through R&D and innovation. Simulations show that in the presence of market power firms are more innovative and financially robust and less prone to bankruptcy. These features have not surfaced so far in standard characterizations of monopolistic competition.
2024
Inglese
Delli Gatti, D., Gallegati, M., Palestrini, A., Tedeschi, G., Vidal-Tomas, D., Market power, technical progress and financial fragility, <<JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION>>, 2024; 217 (gennaio): 435-452. [doi:10.1016/j.jebo.2023.10.037] [https://hdl.handle.net/10807/306017]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/306017
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