Recent literature has been able to include into standard optimal growth models some hypotheses that allow for the generation of endogenous long run fluctuations. This paper contributes to this endogenous business cycles literature by considering social interactions. In the proposed model, individuals can choose, under a discrete choice rule, to which social group they prefer to belong to. This selection process is constrained essentially by the dimension of the group, which is the main determinant regarding the utility individuals withdraw from social interaction. The proposed setup implies the presence of cycles and chaotic motion describing the evolution of group dimension over time. Because being member of a group involves costs to households, the inclusion of these costs in a standard Ramsey growth model will imply that endogenous cycles might arise in the time trajectory of the growth rate of output.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
2848.
Find related papers by JEL classification: C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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