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On The Impact Of Heterogeneity On Indeterminacy

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  • Christian Ghiglino
  • Marielle Olszak-Duquenne

Abstract

Some recent research indicates that the occurrence of indeterminacy in models with externalities may be overstated because these models ignore agents' heterogeneity. We consider a neoclassical two-sector growth model with technological externalities. Agents are heterogeneous with respect to their shares of the initial stock of capital and in labor endowments. We find that the sign of the effect of inequality on indeterminacy is not pinned down by the standard properties of preferences. However, when the inverse of absolute risk aversion is a convex (respectively concave) function, homogeneity (heterogeneity) tends to neutralize the external effects and eliminate indeterminacy. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 46 (2005)
Issue (Month): 1 (02)
Pages: 171-188

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Handle: RePEc:ier:iecrev:v:46:y:2005:i:1:p:171-188

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  1. Timothy J. Kehoe & David K. Levine & Paul M. Romer, 1990. "On characterizing equilibria of economies with externalities and taxes as solutions to optimization problems," Working Papers 436, Federal Reserve Bank of Minneapolis.
  2. Kehoe, Timothy J. & Levine, David K. & Romer, Paul M., 1990. "Determinacy of equilibria in dynamic models with finitely many consumers," Journal of Economic Theory, Elsevier, vol. 50(1), pages 1-21, February.
  3. Ghiglino, Christian, 2005. "Wealth inequality and dynamic stability," Journal of Economic Theory, Elsevier, vol. 124(1), pages 106-115, September.
  4. Michele Boldrin & Aldo Rustichini, 2010. "Growth and Indeterminacy in Dynamic Models with Externalities," Levine's Working Paper Archive 1382, David K. Levine.
  5. Gollier, Christian, 2001. "Wealth Inequality and Asset Pricing," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 181-203, January.
  6. Christopher D. Carroll & Miles S. Kimball, 1995. "On the concavity of the consumption function," Finance and Economics Discussion Series 95-10, Board of Governors of the Federal Reserve System (U.S.).
  7. Yano, Makoto, 1991. "Temporary transfers in a simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 54(2), pages 372-388, August.
  8. Herrendorf, Berthold & Valentinyi, Akos & Waldmann, Robert, 2000. "Ruling Out Multiplicity and Indeterminacy: The Role of Heterogeneity," Review of Economic Studies, Wiley Blackwell, vol. 67(2), pages 295-307, April.
  9. Bewley, Truman, 1982. "An integration of equilibrium theory and turnpike theory," Journal of Mathematical Economics, Elsevier, vol. 10(2-3), pages 233-267, September.
  10. Matsuyama, Kiminori, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 617-50, May.
  11. Yano, Makoto, 1984. "The turnpike of dynamic general equilibrium paths and its insensitivity to initial conditions," Journal of Mathematical Economics, Elsevier, vol. 13(3), pages 235-254, December.
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Citations

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Cited by:
  1. Stefano Bosi & Thomas Seegmuller, 2005. "Can Heterogeneous Preferences Stabilize Endogenous Fluctuations?," Documents de recherche 05-09, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  2. Yunfang Hu & Kazuo Mino, 2013. "Trade Structure and Belief-Driven Fluctuations in a Global Economy," KIER Working Papers 841, Kyoto University, Institute of Economic Research.
  3. Ghiglino, Christian & Venditti, Alain, 2007. "Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies," Journal of Economic Theory, Elsevier, vol. 135(1), pages 414-441, July.
  4. Daniel R. Carroll & Eric R. Young, 2009. "A note on sunspots with heterogeneous agents," Working Paper 0906, Federal Reserve Bank of Cleveland.
  5. Yunfang Hu & Kazuo Mino, 2009. "Financial Integration and Aggregate Stability," Discussion Papers in Economics and Business 09-01, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  6. Yunfang Hu & Kazuo Mino, 2011. "Globalization and Volatility under Alternative Trade Structures," KIER Working Papers 791, Kyoto University, Institute of Economic Research.
  7. repec:hal:cesptp:halshs-00266713 is not listed on IDEAS
  8. repec:hal:cesptp:halshs-00130200 is not listed on IDEAS
  9. Kazuo Mino, 2008. "Preference Structure and Volatility in a Financially Integrated World," Discussion Papers in Economics and Business 08-05, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  10. Hippolyte D'Albis & Emmanuelle Augeraud-Véron, 2009. "Competitive Growth in a Life-cycle Model: Existence and Dynamics," Post-Print hal-00630459, HAL.
  11. Ghiglino, Christian, 2007. "Trade, redistribution and indeterminacy," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 365-389, April.
  12. Bosi, Stefano & Seegmuller, Thomas, 2008. "Can heterogeneous preferences stabilize endogenous fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 624-647, February.
  13. Hennessy, David A. & Lapan, Harvey E., 2006. "On the nature of certainty equivalent functionals," Journal of Mathematical Economics, Elsevier, vol. 43(1), pages 1-10, December.
  14. repec:hal:journl:halshs-00194250 is not listed on IDEAS
  15. Mino, Kazuo, 2008. "Financial integration and volatility in a two-country world," MPRA Paper 16953, University Library of Munich, Germany.
  16. Hori, Katsuhiko, 2007. "Indeterminacy in a monetary economy with heterogeneous agents," MPRA Paper 49316, University Library of Munich, Germany.

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