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On The Impact Of Heterogeneity On Indeterminacy

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Listed author(s):
  • Christian Ghiglino
  • Marielle Olszak-Duquenne

Abstract

Some recent research indicates that the occurrence of indeterminacy in models with externalities may be overstated because these models ignore agents' heterogeneity. We consider a neoclassical two-sector growth model with technological externalities. Agents are heterogeneous with respect to their shares of the initial stock of capital and in labor endowments. We find that the sign of the effect of inequality on indeterminacy is not pinned down by the standard properties of preferences. However, when the inverse of absolute risk aversion is a convex (respectively concave) function, homogeneity (heterogeneity) tends to neutralize the external effects and eliminate indeterminacy. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 46 (2005)
Issue (Month): 1 (02)
Pages: 171-188

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Handle: RePEc:ier:iecrev:v:46:y:2005:i:1:p:171-188
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Find related papers by JEL classification:
  • D30 - Microeconomics - - Distribution - - - General
  • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
  • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
  • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  1. Kehoe, Timothy J & Levine, David K & Romer, Paul M, 1992. "On Characterizing Equilibria of Economies with Externalities and Taxes as Solutions to Optimization Problems," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(1), pages 43-68, January.
  2. Kiminori Matsuyama, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 617-650.
  3. Boldrin, Michele & Rustichini, Aldo, 1994. "Growth and Indeterminacy in Dynamic Models with Externalities," Econometrica, Econometric Society, vol. 62(2), pages 323-342, March.
  4. Kehoe, Timothy J. & Levine, David K. & Romer, Paul M., 1990. "Determinacy of equilibria in dynamic models with finitely many consumers," Journal of Economic Theory, Elsevier, vol. 50(1), pages 1-21, February.
  5. Yano, Makoto, 1991. "Temporary transfers in a simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 54(2), pages 372-388, August.
  6. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-992, July.
  7. Christian Gollier, 2001. "Wealth Inequality and Asset Pricing," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 181-203.
  8. Berthold Herrendorf & Akos Valentinyi & Robert Waldmann, 2000. "Ruling Out Multiplicity and Indeterminacy: The Role of Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 67(2), pages 295-307.
  9. Bewley, Truman, 1982. "An integration of equilibrium theory and turnpike theory," Journal of Mathematical Economics, Elsevier, vol. 10(2-3), pages 233-267, September.
  10. Ghiglino, Christian, 2005. "Wealth inequality and dynamic stability," Journal of Economic Theory, Elsevier, vol. 124(1), pages 106-115, September.
  11. Yano, Makoto, 1984. "The turnpike of dynamic general equilibrium paths and its insensitivity to initial conditions," Journal of Mathematical Economics, Elsevier, vol. 13(3), pages 235-254, December.
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Cited by:

  1. Hippolyte d'Albis & Emmanuelle Augeraud-véron, 2009. "Competitive Growth In A Life-Cycle Model: Existence And Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 459-484, 05.
  2. Bosi, Stefano & Seegmuller, Thomas, 2008. "Can heterogeneous preferences stabilize endogenous fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 624-647, February.
  3. Ghiglino, Christian & Venditti, Alain, 2007. "Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies," Journal of Economic Theory, Elsevier, vol. 135(1), pages 414-441, July.
  4. Hori, Katsuhiko, 2007. "Indeterminacy in a monetary economy with heterogeneous agents," MPRA Paper 49316, University Library of Munich, Germany.
  5. Hu, Yunfang & Mino, Kazuo, 2013. "Trade structure and belief-driven fluctuations in a global economy," Journal of International Economics, Elsevier, vol. 90(2), pages 414-424.
  6. KONDO Atsumasa, "undated". "The Role of Productivity Growth Rates for Rising Inequality in an Economy with Heterogeneous Agents," ESRI Discussion paper series 326, Economic and Social Research Institute (ESRI).
  7. Yunfang Hu & Kazuo Mino, 2009. "Financial Integration and Aggregate Stability," Discussion Papers in Economics and Business 09-01, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  8. Kazuo Mino, 2008. "Preference Structure and Volatility in a Financially Integrated World," Discussion Papers in Economics and Business 08-05, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  9. Hennessy, David A. & Lapan, Harvey E., 2006. "On the nature of certainty equivalent functionals," Journal of Mathematical Economics, Elsevier, vol. 43(1), pages 1-10, December.
  10. Yunfang Hu & Kazuo Mino, 2011. "Globalization and Volatility under Alternative Trade Structures," KIER Working Papers 791, Kyoto University, Institute of Economic Research.
  11. Mino, Kazuo, 2008. "Financial integration and volatility in a two-country world," MPRA Paper 16953, University Library of Munich, Germany.
  12. Daniel R. Carroll & Eric R. Young, 2009. "A note on sunspots with heterogeneous agents," Working Paper 0906, Federal Reserve Bank of Cleveland.
  13. Ghiglino, Christian, 2007. "Trade, redistribution and indeterminacy," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 365-389, April.
  14. Stefano Bosi & Thomas Seegmuller, 2005. "Can Heterogeneous Preferences Stabilize Endogenous Fluctuations?," Documents de recherche 05-09, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

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