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Irreversibilities, uncertainty and underemployment equilibria

Author

Listed:
  • David de la Croix

    () (National Fund for Scientific Research and University of Louvain, IRES, Place Montesquieu 3, B-1348 Louvain-la-Neuve, Belgium FEDEA, Calle Jorge Juan 46, 28001 Madrid, Spain)

  • Omar Licandro

    () (National Fund for Scientific Research and University of Louvain, IRES, Place Montesquieu 3, B-1348 Louvain-la-Neuve, Belgium FEDEA, Calle Jorge Juan 46, 28001 Madrid, Spain)

Abstract

In a competitive overlapping generations model, technological irreversibilities and idiosyncratic uncertainty generate a misallocation of resources among segments, which takes the form of underemployment and underutilization of capacities at the aggregate level. This affects the qualitative properties of the equilibrium path. Indeed, increases in the variance of the technological shock can be responsible, a.o., for an "inescapable poverty trap," or for periodic orbits generating endogenous fluctuations in underemployment.

Suggested Citation

  • David de la Croix & Omar Licandro, 2000. "Irreversibilities, uncertainty and underemployment equilibria," Spanish Economic Review, Springer;Spanish Economic Association, vol. 2(3), pages 231-248.
  • Handle: RePEc:spr:specre:v:2:y:2000:i:3:p:231-248
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    Keywords

    Underemployment; underutilization; irreversibility; poverty trap; endogenous fluctuations;

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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