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SaddleS and BifurcationS in an Overlapping GenerationS Economy with a Renewable Resource

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  • Erkki Koskela

    ()
    (Department of Economics, University of Helsinki, Finland)

  • Markku Ollikainen

    ()
    (Department of Economics, University of Helsinki, Finland)

  • Mikko Puhakka

    ()
    (Department of Economics, University of Oulu, Finland)

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    Abstract

    We incorporate a renewable resource as a factor of production and store of value into an overlapping generations model. We characterize dynamics and stability of steady state equilibria by introducing the concave resource growth function. The nature of equilibria in the presence of ‘well-behaved’ resource stock growth depends on the size of the intertemporal elasticity of substitution in consumption. If it is at least half, but not exactly one, steady states are saddle points. For intertemporal elasticity less than one half we use a parametric example with logistic growth to demonstrate the existence of stable equilibria (indeterminacy) and a subcritical bifurcation.

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    Bibliographic Info

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

    Volume (Year): 21 (2008)
    Issue (Month): 1 (Spring)
    Pages: 3-21

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    Handle: RePEc:fep:journl:v:21:y:2008:i:1:p:3-21

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    Web page: http://www.taloustieteellinenyhdistys.fi
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    1. Olson, Lars J. & Knapp, Keith C., 1997. "Exhaustible Resource Allocation in an Overlapping Generations Economy," Journal of Environmental Economics and Management, Elsevier, vol. 32(3), pages 277-292, March.
    2. Kehoe, Timothy J. & Levine, David K., 1990. "The economics of indeterminacy in overlapping generations models," Journal of Public Economics, Elsevier, vol. 42(2), pages 219-243, July.
    3. Boldrin, Michele & Woodford, Michael, 1990. "Equilibrium models displaying endogenous fluctuations and chaos : A survey," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 189-222, March.
    4. Eliasson, Ludvik & Turnovsky, Stephen J., 2004. "Renewable resources in an endogenously growing economy: balanced growth and transitional dynamics," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1018-1049, November.
    5. Gardner M. Brown, 2000. "Renewable Natural Resource Management and Use without Markets," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 875-914, December.
    6. Kemp, Murray C & Long, Ngo Van, 1979. "The Under- Exploitation of Natural Resources: A Model with Overlapping Generations," The Economic Record, The Economic Society of Australia, vol. 55(150), pages 214-21, September.
    7. Koskela, Erkki & Ollikainen, Markku & Puhakka, Mikko, 2002. "Renewable Resources in an Overlapping Generations Economy Without Capital," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 497-517, May.
    8. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
    9. Mourmouras, Alex, 1993. "Conservationist government policies and intergenerational equity in an overlapping generations model with renewable resources," Journal of Public Economics, Elsevier, vol. 51(2), pages 249-268, June.
    10. Gardner Brown, 2000. "Renewable Natural Resource Management and Use Without Markets," Working Papers 0025, University of Washington, Department of Economics.
    11. Motohiro Yogo, 2004. "Estimating the Elasticity of Intertemporal Substitution When Instruments Are Weak," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 797-810, August.
    12. Gardner Brown, 2000. "Renewable Natural Resource Management and Use Without Markets," Discussion Papers in Economics at the University of Washington 0025, Department of Economics at the University of Washington.
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