Journal article

Authors list: Adamonis, Jolita; Göcke, Matthias

Publication year: 2019

Pages: 299-318

Journal: Journal of Post Keynesian Economics

Volume number: 42

Issue number: 2

ISSN: 0160-3477

eISSN: 1557-7821

Open access status: Green

DOI Link: https://doi.org/10.1080/01603477.2017.1401902

Publisher: Taylor and Francis Group

Abstract: 
Transition from one economic equilibrium to another as a consequence of shocks is often associated with sunk adjustment costs. Firm-specific sunk market entry investments (or sunk market exit costs) in case of a reaction to price shocks are an example. These adjustment costs lead to a dynamic supply pattern similar to hysteresis. In analogy to "hysteresis losses" in ferromagnetism, the authors explicitly model dynamic adjustment losses in the course of market entry and exit cycles. They start from the micro level of a single firm and use explicit aggregation tools from hysteresis theory in mathematics and physics to calculate dynamic losses. The authors show that strong market fluctuations generate disproportionately large hysteresis losses for producers. This could give a reason for the implementation of stabilizing measures and policies to prevent strong (price) variations or, alternatively, to reduce the sunk entry and exit costs.

Harvard Citation style: Adamonis, J. and Göcke, M. (2019) Modelling economic hysteresis losses caused by sunk adjustment costs, Journal of Post Keynesian Economics, 42(2), pp. 299-318. https://doi.org/10.1080/01603477.2017.1401902

APA Citation style: Adamonis, J., & Göcke, M. (2019). Modelling economic hysteresis losses caused by sunk adjustment costs. Journal of Post Keynesian Economics. 42(2), 299-318. https://doi.org/10.1080/01603477.2017.1401902