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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Three Sources of Increasing Returns to Scale
Jinill Kim

Abstract: This paper reviews various types of increasing returns from a critical perspective. Increasing returns have been introduced in a monopolistic-competition model both at the firm level and at the aggregate level. We show that the degree of the aggregate returns to scale is a linear combination of three return parameters, with the weights determined by the specification of a zero-profit condition. Identification issues are discussed with an emphasis on recent macro literature. We argue that disaggregate data give information on the market structure rather than the technology. Welfare implications explain why it is important to identify various increasing returns.

Keywords: Increasing returns, monopolistic competition, returns to variety

Full paper (443 KB PDF) | Full paper (504 KB Postscript)

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Last update: July 16, 1997