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Industry Dynamics and Indeterminacy in an OLG Economy with Endogenous Occupational Choice

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  • Maria José Gil-Moltó

    ()

  • Dimitrios Varvarigos

    ()

Abstract

We model an oligopolistic industry that supplies intermediate goods in an overlapping generations economy. Agents can choose whether to provide labour or to become entrepreneurs and compete in the industry. The idea that entry is determined through occupational choice has major implications for the industry’s dynamics. We find that the industry’s convergence to the steady state equilibrium occurs through cyclical fluctuations. Furthermore, dynamic the path of convergence is not uniquely determined, as it is partially determined by self-fulfilling expectations. These results imply that differences in economic performance may not necessarily reflect differences in either structural characteristics or initial conditions.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/09.

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Date of creation: May 2012
Date of revision: Sep 2012
Handle: RePEc:lec:leecon:12/09

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Keywords: Dynamic general equilibrium; Firms’ entry; Industry dynamics; Oligopoly.;

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  1. colciago, andrea & Rossi, Lorenza, 2011. "Endogenous Market Structures and the Business Cycle," MPRA Paper 29629, University Library of Munich, Germany.
  2. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2003. "Business Cycles with Free Entry Ruled by Animal Spirits," CEPR Discussion Papers 3919, C.E.P.R. Discussion Papers.
  3. Boyan Jovanovic & Chung-Yi Tse, 2006. "Creative Destruction in Industries," NBER Working Papers 12520, National Bureau of Economic Research, Inc.
  4. Fabio Ghironi & Marc J. Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," NBER Working Papers 10540, National Bureau of Economic Research, Inc.
  5. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monopoly Power and Endogenous Product Variety: Distortions and Remedies," NBER Working Papers 14383, National Bureau of Economic Research, Inc.
  6. Toshihiko Mukoyama & Yoonsoo Lee, 2008. "Entry, Exit, and Plant-level Dynamics over the Business Cycle," 2008 Meeting Papers 454, Society for Economic Dynamics.
  7. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  8. repec:hal:cesptp:hal-00680634 is not listed on IDEAS
  9. D'Aspremont, C. & Dos Santos Ferreira, R. & Varet-Gerard, L.A., 1999. "Endogenous Business Cycles and Business Formation in an Oligopolistic OLG Model with Strategic R&D Investment," G.R.E.Q.A.M. 99a33, Universite Aix-Marseille III.
  10. Bilbiie, Florin O. & Ghironi, Fabio & Melitz, Marc J., 2012. "Endogenous Entry, Product Variety, and Business Cycles," Scholarly Articles 10914281, Harvard University Department of Economics.
  11. Andrea Colciago & Federico Etro, 2007. "Real Business Cycles with Cournot Competition and Endogenous Entry," Working Papers 135, University of Milano-Bicocca, Department of Economics, revised Feb 2008.
  12. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2005. "Non-linear endogenous fluctuations with free entry and variable markups," Journal of Economic Dynamics and Control, Elsevier, vol. 29(5), pages 847-871, May.
  13. F. Etro, 2007. "Endogenous Market Structures and Macroeconomic Theory," Review of Business and Economics, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, vol. 0(4), pages 517-540.
  14. Oded Galor, 2005. "Discrete Dynamical Systems," GE, Growth, Math methods 0504001, EconWPA.
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