Abstracts of Working Papers in Economics

1998 Abstracts of Working Papers in Economics  
Recently some researchers have suggested that economies of scale and imperfect competition play a major role in determining the effects of exogenous policy shocks. Thus they have emphasized the need to incorporate industrial organization features into computable general equilibrium (CGE) models. However, our knowledge of this new paradigm is still in its infancy ~ it is not yet clear how models of this type should be specified and to what extent their predictions are sensitive to the choice of
more » ... pecification. This paper describes a 23-sector CGE model of the Australian economy, based on ORANI and on Horridge (1987a and 1987b), which incorporates economies of scale and imperfect competition. The model is used to investigate whether adding these new features affects simulation results. We present results for three different types of non-competitive regimes and compare these with results generated by a traditional (constant returns and perfect competition) version of the same model. . PG 29. PR $5.00. JE D81. E22. KW Capital Accumulation. Irreversible Investment. AB When investment decisions cannot be reversed and returns to capital are uncertain, the firm faces a higher user cost of capital than if it could reverse its decisions. This higher user cast tends to reduce the firm's capital stock. Opposing this effect is the irreversibility constraint itself; when the constraint binds, the firm would like to sell capital but cannot. This effect tends to increase the firm's capital stock. We show that a firm with irreversible investment may have a higher or a lower expected capital stock, even in the long run, compared to an otherwise identical firm with reversible investment. Furthermore, an increase in uncertainty can either increase or decrease the expected long-run capital stock under irreversibility relative to that under reversibility. However, changes in the expected growth rate of demand, the interest rate, the capital share in output, and the price elasticity of demand all have unambiguous effects.
doi:10.1017/s0951007900003715 fatcat:v7mqbbzwkveqpbazcolpnziqqi