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Original Articles

On entry and exit in response to aggregate shocks

Pages 569-572 | Published online: 06 Oct 2010
 

Abstract

This note extends the Dixit-Pindyck analysis of investment, in the form of market entry and exit under sunk costs, to the case of heterogeneous sunk costs. The implication is that the market displays full hysteresis, in the form of remanence and dependence on the nondominated extremum values of the aggregate shocks experienced. These implications are illustrated by numerical simulations.

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