lations more realistic with keeping the results of the paper unaltered. Yet it is not
obvious that a sectoral capital accumulation process incurs such degree of inflexibility.
This leads to the question as to whether the business cycle patterns still obtain if we
disaggregate the economy to the establishment level. Our analytics shows that the
large aggregate fluctuations can occur in principle regardless of the number of agents,
but a quantitative demonstration of the theoretical possibility is left open.
A Appendix
A.1 Proof of Proposition 1
The details of proof draw on Nirei (2003). Here we outline the proof. Let us rewrite
the best response dynamics for the investment in t. We use u to denote the step in the
dynamics and suppress t. Let ku denote the mean capital defined by (11) with a profile
ku Define k*u by the threshold formula (16) with kυ except for u = 0 at which we
define k*0 = k*t. Define su = (log ku — log k*u)/log λ. Then the dynamics of (ku, su) is
written as follows.
kj0 = kj,t(1 — δ)∕g (30)
sj0 = sj,t + (log kj0,t — log kj,t)/ log λ (31)
f kjuλ if su < 0
ku+1 = J ku∕λ if su > 1 (32)
[ ku otherwise
su+1 = su + (log ku+1 — log ku — log ku+1 +log ku)/log λ (33)
We consider for u > 1 the case m0 > 0. The case m0 < 0 is proved symmetrically
by changing the sign of adjustments. W = 0 if m0 = 0. Define Hu as the set of j such
that log kju+1 — log kju = log λ. Define mu as the size of Hu . First we derive a formula
for N (log ku+1 —log ku). By definition, we have log kju+1 = log kju + log λ for u ∈ Hu and
log kj'+1 = log ku for u ∈ Hu. Let us define φ = α(ξ — 1)∕(ξα + 1 — α). Then the first
term of a Taylor expansion is ∑j∙∈Hu (ku∕ku')ψ log λ. All the terms after the second term
either contain φ or are of order 1/N. Also the series are absolutely convergent. We
have φ → 0 as ξ → 1. Hence we obtain N (log ku+1 — log ku) → ∑j∙∈Hu log λ = mu log λ
as ξ → 1 and N → ∞.
Next we examine m0 = N (log k1 — log kt)∕log λ. We break m0 into two terms as
m0 = N (log k1 — log k0)∕log λ + N (log k0 — log kt)∕log λ. The first term represents the
first step adjustments and the second term represents the depreciation. The second
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