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Productivity dispersion and output fluctuations: An evolutionary model

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  • Chakrabarti, Anindya S.
  • Lahkar, Ratul

Abstract

We develop a model of technology choice with search costs. Innovators develop technology of varying quality or productivity. Firms acquire technology after paying a search cost to find high productivity technology. The resulting model has mixed equilibria with productivity dispersion. However, such mixed equilibria are unstable under the logit dynamic from evolutionary game theory. Instead, the economy converges to limit cycles, whose existence we verify numerically. We conclude, therefore, that mixed equilibria is not a robust explanation of productivity dispersion in our model. Instead, such productivity dispersion is a cyclical phenomenon. An additional implication is that cyclical productivity dispersion contributes to endogenous fluctuations in aggregate output.

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  • Chakrabarti, Anindya S. & Lahkar, Ratul, 2017. "Productivity dispersion and output fluctuations: An evolutionary model," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 339-360.
    • Handle: RePEc:eee:jeborg:v:137:y:2017:i:c:p:339-360
    DOI: 10.1016/j.jebo.2017.03.025
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    Cited by:

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    2. Nasir, Muhammad Ali & Wu, Junjie & Howes, Cameron & Ripley, Helen, 2022. "Asymmetric nexus between wages and productivity in the context of the global financial crisis," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 164-175.
    3. Benndorf, Volker & Martínez-Martínez, Ismael & Normann, Hans-Theo, 2021. "Games with coupled populations: An experiment in continuous time," Journal of Economic Theory, Elsevier, vol. 195(C).
    4. Rabanal, Jean Paul & Lee, Dongwook, 2017. "On the dynamic stability of a price dispersion model using gradient dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 84(C), pages 32-42.
    5. Jonathan Newton, 2018. "Evolutionary Game Theory: A Renaissance," Games, MDPI, vol. 9(2), pages 1-67, May.

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    More about this item

    Keywords

    C72; C73; D24; E32; Productivity dispersion; Logit dynamic; Aggregate output;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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