The Dynamics of a Simple Relative Adjustment Cost Framework

Authors: Feichtinger, Gustav¹; Kort, Peter M.²; Hartl, Richard F.³; Wirl, Franz³

Source: German Economic Review, Volume 2, Number 3, August 2001 , pp. 255-268(14)

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Abstract:

This paper considers a capital accumulation model with the specific feature that adjustment costs depend on investment relative to the size of the capital stock. This framework has, beyond its plausible yet neglected setting, a number of interesting consequences. In particular, the possibility of multiple equilibria, of an unstable steady state and thus of a (`history dependent') threshold associated with concavity is surprising given a voluminous literature on multiple, history-dependent equilibria emphasizing non-concavities (or convexities).

Document Type: Original article

DOI: http://dx.doi.org/10.1111/1468-0475.00037

Affiliations: 1: Vienna University of Technology, 2: Tilberg University, 3: University of Vienna

Publication date: 2001-08-01