Avinash Dixit

Bio: Avinash Dixit is an academic researcher from Princeton University. The author has contributed to research in topics: Oligopoly & Investment (macroeconomics). The author has an hindex of 80, co-authored 228 publications receiving 47495 citations. Previous affiliations of Avinash Dixit include Balliol College & Lingnan University.

Investment Under Uncertainty

Abstract: How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending.This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.

Monopolistic competition and optimum product diversity

Abstract: Pettengill tests whether there is an excessive number of firms in a monopolistically competitive equilibrium by a device of considerable expository merit. He removes one firm, and redistributes the resources thus released equally over the remaining firms in the sector, to see if welfare can be improved. To do this correctly, we write n, for the equilibrium number of firms and xe for the output of each. With fixed cost a and constant average variable cost c, removing one firm releases (a + Cxe) of resources, and this enables the output of each of the remaining ( I) firms to be increased (a + c Xe )/(1fl 1)}. The quantity xo of the numeraire good is unaffected by this, and the utility function (equation (31) of our paper) is

Entry and Exit Decisions under Uncertainty

Abstract: A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm and an active firm are viewed as assets that are call options on each other. The solution is a pair of trigger prices for entry and exit. The entry trigger exceeds the variable cost plus the interest on the entry cost, and the exit trigger is less than the variable cost minus the interest on the exit cost. These gaps produce "hysteresis." Numerical solutions are obtained for several parameter values; hysteresis is found to be significant even with small sunk costs.

The Determinants of Success of Special Interests in Redistributive Politics

Abstract: We examine what determines whether an interest group will receive favors in pork-barrel politics, using a model of majority voting with two competing parties. Each group's membership is heterogeneous in its ideological affinity for the parties. Individuals face a trade-off between party affinity and their own transfer receipts. The model is general enough to yield two often-discussed but competing theories as special cases. If the parties are equally effective in delivering transfers to any group, then the outcome of the process conforms to the "swing voter" theory: both parties woo the groups that are politically central, and most willing to switch their votes in response to economic favors. If groups have party affinities, and each party is more effective in delivering favors to its own support group, then we can get the "machine politics" outcome, where each party favors its core support group. We derive these results theoretically, and illustrate their operation in particular examples.

Theory of international trade

Abstract: This book expounds trade theory emphasizing that a trading equilibrium is general rather than partial, and is often best modelled using dual or envelope functions. This yields a compact treatment of standard theory, clarifies some errors and confusions, and produces some new departures. In particular, the book (i) gives unified treatments of comparative statics and welfare, (ii) sheds new light on the factor-price equalization issue, (iii) treats the modern specific-factor model in parallel with the usual Heckscher-Ohlin one, (iv) analyses the balance of payments in general equilibrium with flexible and fixed prices, (v) studies imperfect competition and intra-industry trade.

Dynamic capabilities and strategic management

Abstract: The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difftcult-to- trade knowledge assets and complementary assets), and the evolution path(s) it has aflopted or inherited. The importance of path dependencies is amplified where conditions of increasing retums exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding intemally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.

Increasing Returns and Long-Run Growth

Abstract: This paper presents a fully specified model of long-run growth in which knowledge is assumed to be an input in production that has increasing marginal productivity. It is essentially a competitive equilibrium model with endogenous technological change. In contrast to models based on diminishing returns, growth rates can be increasing over time, the effects of small disturbances can be amplified by the actions of private agents, and large countries may always grow faster than small countries. Long-run evidence is offered in support of the empirical relevance of these possibilities.

Endogenous Technological Change

Abstract: Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity

Abstract: This paper develops a dynamic industry model with heterogeneous firms to analyze the intra-industry effects of international trade. The model shows how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market) and will simultaneously force the least productive firms to exit. It then shows how further increases in the industry's exposure to trade lead to additional inter-firm reallocations towards more productive firms. The paper also shows how the aggregate industry productivity growth generated by the reallocations contributes to a welfare gain, thus highlighting a benefit from trade that has not been examined theoretically before. The paper adapts Hopenhayn's (1992a) dynamic industry model to monopolistic competition in a general equilibrium setting. In so doing, the paper provides an extension of Krugman's (1980) trade model that incorporates firm level productivity differences. Firms with different productivity levels coexist in an industry because each firm faces initial uncertainty concerning its productivity before making an irreversible investment to enter the industry. Entry into the export market is also costly, but the firm's decision to export occurs after it gains knowledge of its productivity.

Innovation and Learning: The Two Faces of R & D

Abstract: The authors assume that firms invest in R&D not only to generate innovations, but also to learn from competitors and extraindustry knowledge sources (e.g., university and government labs). This argument suggests that the ease of learning within an industry will both affect R&D spending, and condition the influence of appropriability and technological opportunity conditions on R&D. For example, they show that, contrary to the traditional result, intraindustry spillovers may encourage equilibrium industry R&D investment. Regression results confirm that the impact of appropriability and technological opportunity conditions on R&D is influenced by the ease and character of learning. Copyright 1989 by Royal Economic Society.