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Irreversibility, uncertainty and underemployment equilibria

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  • Croix, David de la
  • Licandro, Omar

Abstract

In a competitive overlapping generation model, underutilization of labor and equipment can be due to the combination of irreversibility of human capital, physical capital and technology with idiosyncratic productivity shocks. Irreversibilities and uncertainty generate an inefficient allocation of resources among sectors, which takes the form of underemployment and underutilization of capacities at the aggregate level and affects the equilibrium path of capital. We provide examples in which this missallocation, called structural "mismatch," can be responsible, a.o., for an "inescapable poverty trap," or for periodic orbits generating endogenous fluctuations in underemployment.

Suggested Citation

  • Croix, David de la & Licandro, Omar, 1994. "Irreversibility, uncertainty and underemployment equilibria," UC3M Working papers. Economics 2970, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:2970
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    Cited by:

    1. Boretta, M & Cantù, L & Corti, M & del Favero, E, 1997. "Cubic phases of gangliosides in water: Possible role of the conformational bistability of the headgroup," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 236(1), pages 162-176.
    2. Fagnart, Jean-Francois & Licandro, Omar & Sneessens, Henri, 1995. "Capacity utilization dynamics and market power," UC3M Working papers. Economics 3906, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Anna Pestova, 2015. "Leading Indicators of the Business Cycle: Dynamic Logit Models for OECD Countries and Russia," HSE Working papers WP BRP 94/EC/2015, National Research University Higher School of Economics.
    4. Fagnart, Jean-Francois & Licandro, Omar & Sneessens, Henri R., 1997. "Capacity utilization and market power," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 123-140, November.

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    JEL classification:

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

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