Abstract: This paper analyses the general equilibrium effects on asset valuation
and capital accumulation of an exogenous drop in the rate of
return required by investors in a model of production with imperfectly
competitive product markets. The model improves substantially on the
standard perfectly competitive neoclassical framework, by dissociating
the behavior of marginal and average q. It tracks more closely current
observed data on the ratio of stockmarket value to the economy's
capital base, while uncoupling this valuation ratio from investment
behavior. The model does so by assuming that asset holders price
not only the future marginal productivity of capital, but also the
value of monopoly franchises, which arise from the interplay of
market power and returns to scale.
Keywords: Asset pricing, investment, monopolistic competition, markup, scale
Full paper (403 KB PDF)
Home  FEDS  List of 2003 FEDS papers
Accessibility
To comment on this site, please fill out our feedback form.
Last update: December 3, 2003
