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Indeterminacy Revisited: Variable Capital Utilization and Returns to Scale

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  • Mark Weder

    ()
    (Department of Economics, Humboldt University Berlin, University of Adelaide and CEPR, Germany)

Abstract

This paper presents a one-sector optimal growth model with variable capacity services and production externalities. It uses a new formulation of the endogenous capital utilization rate in which utilization costs appear in the form of variable maintenance expenses. I find that indeterminacy arises at approximate constant returns to scale. This result challenges the viewpoint that indeterminacy is empirically implausible.

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Bibliographic Info

Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

Volume (Year): 18 (2005)
Issue (Month): 2 (Autumn)
Pages: 49-56

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Handle: RePEc:fep:journl:v:18:y:2005:i:2:p:49-56

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Web page: http://www.taloustieteellinenyhdistys.fi
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  1. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  2. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-83, April.
  3. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
  4. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  5. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  6. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  7. Laitner, John & Stolyarov, Dmitriy, 2004. "Aggregate returns to scale and embodied technical change: theory and measurement using stock market data," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 191-233, January.
  8. Harrison, Sharon G. & Weder, Mark, 2002. "Tracing externalities as sources of indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 851-867, May.
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