TY - JOUR
T1 - On industry equilibrium under uncertainty
AU - Drèze, Jacques H.
AU - Sheshinski, Eytan
PY - 1984/6
Y1 - 1984/6
N2 - The paper considers an industry consisting of numerous firms that produce a homogeneous output, the demand for which is a random variable. Each firm belongs to one of K possible types, and each type is characterized by a U-shaped average cost curve. It is shown that: (i) the first-order necessary conditions for efficient investment and output are sufficient; accordingly, the set of competitive equilibria is non-empty and coincides with the set of efficient allocations; (ii) a dynamic process of free entry and exit of firms, guided by expected profits, is quasistable and every limit point is a competitive equilibrium. The paper also defines a sufficient condition for uniqueness of the competitive equilibrium, in which case it is stable.
AB - The paper considers an industry consisting of numerous firms that produce a homogeneous output, the demand for which is a random variable. Each firm belongs to one of K possible types, and each type is characterized by a U-shaped average cost curve. It is shown that: (i) the first-order necessary conditions for efficient investment and output are sufficient; accordingly, the set of competitive equilibria is non-empty and coincides with the set of efficient allocations; (ii) a dynamic process of free entry and exit of firms, guided by expected profits, is quasistable and every limit point is a competitive equilibrium. The paper also defines a sufficient condition for uniqueness of the competitive equilibrium, in which case it is stable.
UR - http://www.scopus.com/inward/record.url?scp=23944503175&partnerID=8YFLogxK
U2 - 10.1016/0022-0531(84)90042-5
DO - 10.1016/0022-0531(84)90042-5
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AN - SCOPUS:23944503175
SN - 0022-0531
VL - 33
SP - 88
EP - 97
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 1
ER -