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Indeterminacy in Two-Sector Models of Endogenous Growth with Leisure

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  • Mino, Kazuo

Abstract

This paper demonstrates that preference structure may play a pivotal role in generating indeterminacy in the stylized model of endogenous growth. By examining two-sector models of endogenous growth with human capital formation, we show that if the utility function of the representative family is not additively separable between consumption and pure leisure time, indeterminacy may hold even if production technologies satisfy social constant returns. We also examine models with quality leisure in which leisure activities require human capital as well as time. In contrast to the pure-leisure time model, we find that the quality-leisure time model generally needs increasing returns to scale technologies to generate indeterminacy. It is also shown that nonseparability of utility function is crucial for generating indeterminacy in the quality leisure model as well.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16994.

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Date of creation: Apr 2002
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Handle: RePEc:pra:mprapa:16994

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Keywords: endogenous growth; two-sector models; endogenous labor supply; indeterminacy;

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  1. Schmitt-Grohe, Stephanie, 1997. "Comparing Four Models of Aggregate Fluctuations due to Self-Fulfilling Expectations," Journal of Economic Theory, Elsevier, Elsevier, vol. 72(1), pages 96-147, January.
  2. Danyang Xie, 2002. "Divergence in Economic Performance: Transitional Dynamics with Multiple Equilibria," GE, Growth, Math methods, EconWPA 0210002, EconWPA.
  3. Salvador Ortigueira, 2000. "A dynamic analysis of an endogenous growth model with leisure," Economic Theory, Springer, Springer, vol. 16(1), pages 43-62.
  4. Roberto Perli, 1995. "Indeterminacy, Home Production, and the Business Cycle: a Calibrated Analysis," Home Pages, University of Pennsylvania _042, University of Pennsylvania.
  5. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  6. Mino, Kazuo, 1999. "Non-separable utility function and indeterminacy of equilibrium in a model with human capital," Economics Letters, Elsevier, Elsevier, vol. 62(3), pages 311-317, March.
  7. Mino, Kazuo, 1996. "Analysis of a Two-Sector Model of Endogenous Growth with Capital Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 227-51, February.
  8. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  9. Harrison, Sharon G., 2001. "Indeterminacy in a model with sector-specific externalities," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(5), pages 747-764, May.
  10. Mino, Kazuo, 2001. "Indeterminacy and Endogenous Growth with Social Constant Returns," Journal of Economic Theory, Elsevier, Elsevier, vol. 97(1), pages 203-222, March.
  11. Pelloni, Alessandra & Waldmann, Robert, 1998. "Stability properties of a growth model," Economics Letters, Elsevier, Elsevier, vol. 61(1), pages 55-60, October.
  12. Pelloni, Alessandra & Waldmann, Robert, 2000. "Can waste improve welfare?," Journal of Public Economics, Elsevier, Elsevier, vol. 77(1), pages 45-79, July.
  13. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, Elsevier, vol. 81(1), pages 7-36, July.
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