Aggregate Investment and Consistent Intertemporal Technologies

It is frequent practice to model an industry or economy as if it were a single agent solving a single optimization problem. A model of firm behavior which has had extensive use as an aggregative model is the adjustment cost model of investment. We assume there are a number of competitive firms in an industry that choose investment paths to maximize their present value; the technologies of the firms exhibit capital stock adjustment costs. For general concave technologies of the firms, there is no aggregate concave technology that can represent the technological possibilities available to the industry. We find conditions on the technologies of the firms that are necessary and sufficient for the existence of an aggregate technology that can consistently model the industry's behavior and discuss their empirical implications.