Academic Journal
A Stationary Mean-Field Equilibrium Model of Irreversible Investment in a Two-Regime Economy
| Title: | A Stationary Mean-Field Equilibrium Model of Irreversible Investment in a Two-Regime Economy |
|---|---|
| Authors: | René Aïd, Matteo Basei, Giorgio Ferrari |
| Source: | Operations Research. 73:2351-2374 |
| Publication Status: | Preprint |
| Publisher Information: | Institute for Operations Research and the Management Sciences (INFORMS), 2025. |
| Publication Year: | 2025 |
| Subject Terms: | ddc:330, L11, L22, Mathematical Finance (q-fin.MF), mean-field stationary equilibrium, FOS: Economics and business, C61, market concentration, value of economic stability, C62, C73, Quantitative Finance - Mathematical Finance, Optimization and Control (math.OC), 8. Economic growth, FOS: Mathematics, D25, irreversible investment, D41, regime-switching, Mathematics - Optimization and Control, E32 |
| Description: | We study firms size distribution in a mean-field model of Cournot competition in a commodity market, where price follows an inverse power demand function. Firms face irreversible investment decisions and constant depreciation of production capacity. Output is affected by Gaussian productivity shocks, whose volatility and the price function can shift due to rare macroeconomic events modeled by a two-state Markov chain. Firms aim to maximize expected discounted profits, net of investment and operating costs, based on the long-run stationary price. We establish existence and uniqueness of a stationary mean-field equilibrium and characterize it through a barrier-type investment strategy with endogenous thresholds for each economic regime. A quasi-closed form for the stationary distribution of firms’ states is provided. The model generates Pareto-distributed firm sizes, consistent with empirical industry data. It also shows that downturns raise market concentration and that firm performance depends on depreciation rates and the persistence of economic fluctuations. |
| Document Type: | Article Research |
| File Description: | application/pdf |
| Language: | English |
| ISSN: | 1526-5463 0030-364X |
| DOI: | 10.1287/opre.2023.0250 |
| DOI: | 10.48550/arxiv.2305.00541 |
| Access URL: | http://arxiv.org/abs/2305.00541 https://pub.uni-bielefeld.de/record/2978796 https://pub.uni-bielefeld.de/record/3003782 https://doi.org/10.1287/opre.2023.0250 http://hdl.handle.net/10419/278469 |
| Rights: | arXiv Non-Exclusive Distribution CC BY "In Copyright" Rights Statement |
| Accession Number: | edsair.doi.dedup.....3d17a272c8df77ca81ad01d0f65e919f |
| Database: | OpenAIRE |
| ISSN: | 15265463 0030364X |
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| DOI: | 10.1287/opre.2023.0250 |