Essays on growth : imperfect competition, labour supply and local public goods

• Main Author: Duranton, Gilles
• Published: London School of Economics and Political Science (University of London) 1997
• Subjects: 330; Economics & economic theory
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.265001

This dissertation is primarily concerned with two major issues: 1/ Is growth really sustainable in the "long-run". 2/ What are the consequences for growth of imperfect competition. Chapter 1 explores a simple model of endogenous growth in an overlapping generations framework when labour supply is made endogenous. If leisure and consumption are substitutes, the economy experiences multiple equilibrium paths. If leisure and consumption are complements, then production remains bounded, although endogenous growth is possible and socially desirable. In chapter 2, instead of assuming that local public goods only affect the utility of consumers as is usual, we assume that they are purely productive. The implications of this assumption are analysed within standard dynamic growth models where all factors are mobile. We show that the decentralisation of the first-best is more demanding than usually. In chapter 3, we propose a strategic model of imperfect competition with endogenous growth and endogenous market structure. Assuming increasing returns at the firm level and heterogeneity on the labour market, short-run efficiency can be maximised under monopoly. However, in the long-run competition can generate growth through a distribution effect, whereas a monopoly leads to a no-growth steady-state. In chapter 4, the evolution of industries is viewed as a cumulative purposeful cost-reduction process subject to spillovers in a differentiated oligopoly. The long-run outcome depends primarily on spillovers. When they are weak, firms dig their niche over time and keep investing. On the contrary, if spillovers are strong and if the diffusion function of spillovers is concave, firms use ever more similar technologies. This involves less and less investment and thus a fall in the growth rate of productivity. In the final chapter, we propose a two-sector economy where products are substitutes. The innovation function is random, product specific and the probability of success is increasing in R&D investment. The successful innovator is in a temporary monopoly which provides an incentive for R&D. When a product has a relatively lower marginal cost, the monopoly profits are larger because of its bigger market size. Consequently, R&D investment in this product increases. So does the probability of a new cost-reducing innovation. This simple feed-back effect implies a divergence in the investment and development patterns.