During the last few years there has been an explosion of new data sets and empirical studies of these data focused on the size distribution of firms, turnover (entry and exit of firms), growth and size of firms and the variability of firms' employment. The purpose of this project is to develop economic models that can rigorously compare the time series and cross section data on industry behavior now available. These models will ultimately be useful for predictions and policy evaluations. More specifically, past competitive industry analysis by the investigator is extended to a dynamic stochastic framework. Capital investment decisions are included in the stationary equilibrium analysis to permit the analysis of the impact of economic policies on the rate of turnover of firms, size distribution and variability of employment. The general competitive industry dynamic theory is extended to account for aggregate uncertainty and capital accumulation. This theory provides a dynamic programming algorithm. The project also analyzes diffusion of technological change and growth in the presence of technological complementarities and specific (putty clay) forms of capital, in a general equilibrium framework. The dynamic properties of the growth model are analyzed, focusing on understanding how the existing distribution of specific capital affects the introduction of new technologies; the role of expectations in the diffusion of new technologies; joint implications between innovation, diffusion and growth; and a model on the diffusion of organization capital. This project is important because it fills a gap in the industrial organization literature. In contrast to the vast empirical work in this field, there have been very few attempts to develop economic models on the dynamics of industry behavior with implications on entry, the rate of turnover, exit and size distribution of firms. The results of the research should provide new insights into a number of extremely significant issues such as how equilibrium prices, turnover, concentration, etc. evolve in an industry as a consequence of a change in demand or the evolution of new industries or the implications of changes in demand for the evolution of a declining industry.
