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Dynamic Coalitions, Growth, and the Firm

Staff Report 100 | Published April 1, 1986

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Edward C. Prescott Senior Monetary Advisor
Dynamic Coalitions, Growth, and the Firm


The implications of a dynamic coalition production technology are explored. With this technology, coalitions produce the current period consumption good as well as coalition-specific capital which is embodied in young coalition members. The equilibrium allocation is efficient and displays constant growth rates, even though exogenous technological change is not a feature of the environment. Unlike the neoclassical growth model, policies which influence agents’ investment-consumption decisions affect not only the level of output, but also its constant growth rate. In addition to these growth entailments, the theory has equally important industrial organization implications. Specifically, in equilibrium there is no tendency for coalition (firm) size to regress to the mean or for the distribution of coalition sizes to become more disparate.

Published in: _Minnesota Studies in Macroeconomic Series_ (Vol. 1, 1987, pp. 146-160) Published in: _American Economic Review_ (Vol. 77, No. 2, May 1987, pp. 63-67)