COMPETITIVE RUNS - THE CASE OF A CEILING ON AGGREGATE INVESTMENT

Decentralized investment decision in markets with limits on aggregate investment give rise to endogenous and repeated 'runs', sudden switches of asset holdings by large groups of small agents. This paper studies a model of recurrent runs in a competitive market with stochastic returns and adjustment costs. The properties of the model are discussed using examples from models of investment in exhaustible resources, of capital controls, of runs on banks' limited reserves.