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We propose a theoretical macroeconomic model where capacity underutilization follows from idiosyncratic demand uncertainty at the time monopolistic firms must choose their productive capacity. After their investment decision, firms facing a low demand will typically prefer to run excess capacities rather than reduce their profit margin; firms at full capacity will respond to demand fluctuations solely by price adjustments. We show that the proportion of firms with idle capacities influences crucially the short-run response of the economy to exogenous disturbances and, in particular, the relative importance of price and quantity adjustments.

This paper proposes a dynamic efficient bargaining model with a putty-clay technology and aggregation over heterogeneous micro markets. We analyse the agents' optimal response to unexpected real changes in their economic environment. The model gives a useful description of the linkages between unemployment and the rate of utilisation of productive equipment.

We analyse the interactions between investment and local wage bargaining in a putty-clay model where the investment decision commits the firm to a particular capital intensity. This technological pre-commitment is used strategically in order to manipulate the bargaining outcome. We show that this strategic behaviour induces a non-monotonic relationship between the capital-and-labour demands of the firm and most of her environmental parameters (a.o. the bargaining power of the union, her minimum wage requirement, the capital cost,...). The results we obtain in our putty-clay framework thus contradicts several conclusions of the standard literature on wage bargaining and investment.