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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 mod- els with externalities may be overstated because these models ignore agents’ heterogene- ity. We consider a neoclassical two-sector growth model with technological externalities. Agents are heterogenous in 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 in- verse of absolute risk aversion is a convex (respectively concave) function homogeneity (heterogeneity) tends to neutralize the external effects and eliminate indeterminacy.

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Bibliographic Info

Paper provided by Département des Sciences Économiques, Université de Genève in its series Research Papers by the Department of Economics, University of Geneva with number 2004.09.

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Length: 29 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:gen:geneem:2004.09

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Keywords: endogenous growth; heterogeneity; indeterminacy; inequalities; income distribution.;

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References

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  1. Christopher D. Carroll & Miles S. Kimball, 1995. "On the Concavity of the Consumption Function," Macroeconomics 9503003, EconWPA.
  2. Boldrin, Michele & Rustichini, Aldo, 1994. "Growth and Indeterminacy in Dynamic Models with Externalities," Econometrica, Econometric Society, vol. 62(2), pages 323-42, March.
  3. Timothy J. Kehoe & David K. Levine & Paul Romer, 1990. "Determinacy of Equilibrium in Dynamic Models with Finitely Many Consumers," Levine's Working Paper Archive 165, David K. Levine.
  4. 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.
  5. Matsuyama, Kiminori, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 617-50, May.
  6. Bewley, Truman, 1982. "An integration of equilibrium theory and turnpike theory," Journal of Mathematical Economics, Elsevier, vol. 10(2-3), pages 233-267, September.
  7. 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.
  8. Yano, Makoto, 1991. "Temporary transfers in a simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 54(2), pages 372-388, August.
  9. Ghiglino, Christian, 2005. "Wealth inequality and dynamic stability," Journal of Economic Theory, Elsevier, vol. 124(1), pages 106-115, September.
  10. Gollier, C., 1997. "Wealth Inequality and Asset Pricing," Papers 97.486, Toulouse - GREMAQ.
  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, 2006. "Can heterogeneous preferences stabilize endogenous fluctuations ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00130200, HAL.
  2. Hu, Yunfang & Mino, Kazuo, 2013. "Trade structure and belief-driven fluctuations in a global economy," Journal of International Economics, Elsevier, vol. 90(2), pages 414-424.
  3. Daniel R. Carroll & Eric R. Young, 2009. "A note on sunspots with heterogeneous agents," Working Paper 0906, Federal Reserve Bank of Cleveland.
  4. 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.
  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. 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).
  7. Hennessy, David A. & Lapan, Harvey E., 2006. "On the Nature of Certainty Equivalent Functionals," Staff General Research Papers 12552, Iowa State University, Department of Economics.
  8. Ghiglino, Christian, 2007. "Trade, redistribution and indeterminacy," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 365-389, April.
  9. 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.
  10. Stefano Bosi & Thomas Seegmuller, 2007. "A propos du rôle (dé)stabilisateur de l'hétérogénéitédans les économies à générations imbriquées," Post-Print halshs-00194250, HAL.
  11. Yunfang Hu & Kazuo Mino, 2011. "Globalization and Volatility under Alternative Trade Structures," KIER Working Papers 791, Kyoto University, Institute of Economic Research.
  12. Mino, Kazuo, 2008. "Financial integration and volatility in a two-country world," MPRA Paper 16953, University Library of Munich, Germany.
  13. Hori, Katsuhiko, 2007. "Indeterminacy in a monetary economy with heterogeneous agents," MPRA Paper 49316, University Library of Munich, Germany.

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