Comparative statics with adjustment costs and the Le Chatelier principle
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arXiv
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| Auteurs principaux: | , , |
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| Format: | Preprint |
| Publié: |
2022
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| _version_ | 1866917101528154112 |
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| author | Dekel, Eddie Quah, John K. -H. Sinander, Ludvig |
| author_facet | Dekel, Eddie Quah, John K. -H. Sinander, Ludvig |
| contents | We develop a theory of monotone comparative statics for models with adjustment costs. We show that comparative-statics conclusions may be drawn under the usual ordinal complementarity assumptions on the objective function, assuming very little about costs: only a mild monotonicity condition is required. We use this insight to prove a general Le Chatelier principle: under the ordinal complementarity assumptions, if short-run adjustment is subject to a monotone cost, then the long-run response to a shock is greater than the short-run response. We extend these results to a fully dynamic model of adjustment over time: the Le Chatelier principle remains valid, and under slightly stronger assumptions, optimal adjustment follows a monotone path. We apply our results to models of saving, production, pricing, labor supply and investment. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2206_00347 |
| institution | arXiv |
| publishDate | 2022 |
| record_format | arxiv |
| spellingShingle | Comparative statics with adjustment costs and the Le Chatelier principle Dekel, Eddie Quah, John K. -H. Sinander, Ludvig Theoretical Economics We develop a theory of monotone comparative statics for models with adjustment costs. We show that comparative-statics conclusions may be drawn under the usual ordinal complementarity assumptions on the objective function, assuming very little about costs: only a mild monotonicity condition is required. We use this insight to prove a general Le Chatelier principle: under the ordinal complementarity assumptions, if short-run adjustment is subject to a monotone cost, then the long-run response to a shock is greater than the short-run response. We extend these results to a fully dynamic model of adjustment over time: the Le Chatelier principle remains valid, and under slightly stronger assumptions, optimal adjustment follows a monotone path. We apply our results to models of saving, production, pricing, labor supply and investment. |
| title | Comparative statics with adjustment costs and the Le Chatelier principle |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2206.00347 |