Studies in Aggregate Analysis

University Of Minnesota-Twin Cities, Minneapolis MN

Investigators

Abstract

The objectives of this research is to develop tools that permit the introduction of long-lived organizations into applied general equilibrium analyses of the macro economy and to exploit these tools in addressing economic issues. Many economic insights have been gained simply by relying on an aggregate production function and by introducing entrepreneurs that manage capital and labor. However, introducing large organizations is necessary if certain issues are to be addressed successfully. I model these large organizations as dynamic coalitions or clubs. One feature of these organizations is that they can, and often do, outlive their founders. Another key feature is that their longevity depends upon future generation participation constraints and future managers' incentive compatibility constraints. Theory which includes such long-lived organizations has consequences for measurement. Currently the aggregate value of firms far exceeds the value of their physical assets less their net indebtedness. Perhaps huge amounts of intangible organization capital are embodied in firms. If so, the investment in organization capital has important consequences for measuring the performance of the economy. This theory has relevance for developing a theory of intergeneration transfer schemes, in particular social security arrangements. The theory may also be extended to analyze the formation and expansion of economic unions, in particular the European Union and NAFTA in recent times, and the United States earlier.