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Irreversibility, Uncertainty and Underemployment Equilibria

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Author Info

  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Licandro, Omar

    (FEDEA, Madrid; University Carlos III, Madrid)

Abstract

In a competitive overlapping generation model, underutilization of labor and equipment can be due to the combinaison of irreversibility of human capital, physical capital and technology with idiosyncratic productivity shocks. Irreversibilities and uncertainty generate an inefficient allocation of resources among sectors, which takes the form of underemployment and underutilization of capacities at the aggregate level and affects the equilibrium path of capital. We provide examples in which this missallocation, called structural "mismatch", can be responsible, a.o., for an "inescapable poverty trap", or for periodic orbits generating endogenous fluctuations in underemployment.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1994028.

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Length: 13
Date of creation: 01 Nov 1993
Date of revision: 00 Oct 1994
Handle: RePEc:ctl:louvir:1994028

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Keywords: underemployment; underutilization; irreversibility; poverty trap; endogenous fluctuations;

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Cited by:
  1. J-Fr. Fagnart & Omar Licandro & H. R. Sneessens, . "Capacity utilization and market power," Working Papers 96-12, FEDEA.

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