Increasing Returns and Animal Spirits
AbstractThe purpose of this note is to simply point out that the multiplicity, intrinsic of course to the presence of non-convexities, characterizes the models of growth with external increasing returns which have been studied recently, and, more importantly, to show that the many competitive equilibria which often arise in those models can be interpreted as "animal spirits" equilibria- that is, equilibria indexed by the consumers' optimism or pessimism. This multiplicity of competitive equilibrium paths can be viewed as providing a new foundation upon which to build a theory of self-fulfilling prophecies, one which relies solely on the existence of external effects and does not rest on the overlapping generation structure or on back- ward-bending offer curves. The conclusion that multiple animal spirits competitive equilibria are likely to arise in a model of external increasing returns would survive the generalization of the framework used in this paper to many-period environments- be they overlapping generation or representative agent, infinite horizon structures.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/8681.
Date of creation: Sep 1989
Date of revision:
Publication status: Published in American Economic Review, 1989, vol. 79, pp.889-894
Other versions of this item:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Spire @ Sciences Po Library).
If references are entirely missing, you can add them using this form.