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Markov-Perfect Industry Dynamics: A Framework for Empirical Work
Abstract
This paper provides a model of firm and industry dynamics that allows for entry, exit and firm-specific uncertainty generating variability in the fortunes of firms. It focuses on the impact of uncertainty arising from investment in research and exploration-type processes. It analyses the behaviour of individual firms exploring profit opportunities in an evolving market place and derives optimal policies, including exit, in this environment. Then it adds an entry process and aggregates the optimal behaviour of all firms, including potential entrants, into a rational expectations, Markov-perfect industry equilibrium, and proves ergodicity of the equilibrium process. Numerical examples are used to illustrate the more detailed characteristics of the stochastic process generating industry structures that result from this equilibrium.
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Citations
Cited by
Automobile Prices in Market Equilibrium
Berry, S., Levinsohn, J., & Pakes, A. (1995) · Econometrica · doi:10.2307/2171802 · Cited by 4,883
Self-citationSyverson, C. (2011) · Journal of Economic Literature · doi:10.1257/jel.49.2.326 · Cited by 2,942
Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?
Foster, L., Haltiwanger, J., & Syverson, C. (2008) · American Economic Review · doi:10.1257/aer.98.1.394 · Cited by 1,861
Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants
Pavcnik, N. (2002) · The Review of Economic Studies · doi:10.1111/1467-937x.00205 · Cited by 1,777
Do exports generate higher productivity? Evidence from Slovenia
De Loecker, J. (2007) · Journal of International Economics · doi:10.1016/j.jinteco.2007.03.003 · Cited by 1,256
Metadata
- Authors
- Ericson, R., & Pakes, A.
- Venue
- The Review of Economic Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 1995-01
- Volume
- 62
- Issue
- 1
- Pages
- 53
- ISSN
- 0034-6527 (ISSN-L)
- OpenAlex
- W1964382689
- Cited by
- 2,325
- References
- 0
- FWCI
- 38.21
- Type
- journal article
- Language
- en
- Open access
- closed
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- Ericson, R., & Pakes, A. (1995). Markov-Perfect Industry Dynamics: A Framework for Empirical Work. The Review of Economic Studies. https://doi.org/10.2307/2297841
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
