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Chaos and capacity utilization under increasing returns to scale

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  • Stockman, David R.

Abstract

Abstract It has been shown that adding variable capacity utilization of capital to a one-sector model with a mild production externality can produce local indeterminacy. In this paper, I provide a global analysis of this model and provide sufficient conditions for the existence of Euler equation branching. I show that this branching allows for regime switching equilibria implying [omega]-chaos and positive topological entropy - two notions of chaotic behavior.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 77 (2011)
Issue (Month): 2 (February)
Pages: 147-162

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Handle: RePEc:eee:jeborg:v:77:y:2011:i:2:p:147-162

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Variable capacity utilization Increasing returns to scale Externality Indeterminacy Cycles Chaos Euler equation branching Regime switching [omega]-Chaos Topological entropy;

References

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  1. Burnside, C & Eichenbaum, M & Rebelo, S, 1995. "Capital Utilization and Returns to Scale," RCER Working Papers 402, University of Rochester - Center for Economic Research (RCER).
  2. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, Sunspots, and Automatic Stabilizers," NBER Working Papers 5703, National Bureau of Economic Research, Inc.
  3. David R. Stockman, 2007. "Chaos and Sector-specific Externalities," Working Papers 07-17, University of Delaware, Department of Economics.
  4. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
  5. Gardini, L. & Hommes, C.H. & Tramontana, F. & de Vilder, R., 2009. "Forward and Backward Dynamics in implicitly defined Overlapping Generations Models," CeNDEF Working Papers 09-02, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  6. Benhabib, Jess & Farmer, Roger E.A., 1996. "Indeterminacy and Sector-Specific Externalities," Working Papers 96-12, C.V. Starr Center for Applied Economics, New York University.
  7. Benhabib, Jess & Farmer, Roger E.A., 1991. "Indeterminacy and Increasing Returns," Working Papers 91-59, C.V. Starr Center for Applied Economics, New York University.
  8. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
  9. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  10. Schmitt-Grohe, Stephanie & Uribe, Martin, 1997. "Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 976-1000, October.
  11. Stockman, David R., 2010. "Balanced-budget rules: Chaos and deterministic sunspots," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1060-1085, May.
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