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Consumption externality and indeterminacy under increasing returns to scale and endogenous capital depreciation

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  • Wang, Gaowang
  • Zou, Heng-fu

Abstract

This paper incorporates negative consumption externality embodying “jealousy” and “running away from the Joneses” into Guo and Lansing (2007)'s model with production externality and endogenous depreciation, and examines how consumption externality helps to generate equilibrium indeterminacy together with production externality. Specifically, the existence of consumption externality reduces the upper and lower bounds of production externality for local indeterminacy, and when the degree of consumption externality increases, the upper and lower bounds of production externalities for local indeterminacy are both reduced.

Suggested Citation

  • Wang, Gaowang & Zou, Heng-fu, 2014. "Consumption externality and indeterminacy under increasing returns to scale and endogenous capital depreciation," Economic Modelling, Elsevier, vol. 38(C), pages 282-287.
    • Handle: RePEc:eee:ecmode:v:38:y:2014:i:c:p:282-287
    DOI: 10.1016/j.econmod.2014.01.015
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    References listed on IDEAS

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    1. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
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    3. Benhabib, Jess & Farmer, Roger E. A., 1996. "Indeterminacy and sector-specific externalities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 421-443, June.
    4. Alonso-Carrera, Jaime & Caballé, Jordi & Raurich, Xavier, 2008. "Can consumption spillovers be a source of equilibrium indeterminacy?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2883-2902, September.
    5. Guo, Jang-Ting & Harrison, Sharon G., 2001. "Indeterminacy with capital utilization and sector-specific externalities," Economics Letters, Elsevier, vol. 72(3), pages 355-360, September.
    6. Omar Licandro & Luis A. Puch, 2000. "Capital Utilization, Maintenance Costs and the Business Cycle," Annals of Economics and Statistics, GENES, issue 58, pages 143-164.
    7. Perli, Roberto, 1998. "Indeterminacy, home production, and the business cycle: A calibrated analysis," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 105-125, February.
    8. Jang‐Ting Guo & Kevin J. Lansing, 2007. "Maintenance expenditures and indeterminacy under increasing returns to scale," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 147-158, June.
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    More about this item

    Keywords

    Consumption externality; Production externality; Indeterminacy; Endogenous depreciation;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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