Aggregate Implication of Complementarities: Machine Replacement, Income Distribution, and Fluctuations

The purpose of this project is to analyze three broad issues: machine replacement and aggregate business fluctuations, team dynamics, and business cycle behavior. The first topic involves the aggregate implication of machine replacement which entails the replacement of old machines with new, more productive ones. Previous work has focused on seasonal fluctuations induced by retooling in the automobile industry during the both interwar and post WW II periods. The extensions will involve looking more broadly over other industries to focus on the connection between machine replacement and the business cycle and to evaluate competing theoretical models of seasonal productivity fluctuations. The second topic concerns the relationship between complementarities in the production process and the distribution of income. Here the assignment of individuals to teams (e.g. firms) is analyzed focusing on the induced dynamics of the income distribution, paying particular attention to persistent income inequality. The third topic continues previous work on net business formation, bank runs, and the importance of technological non-convexities for aggregate fluctuations. This research is important because it will provide a better understanding of factors influencing economic fluctuations and the distribution of income.