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Irreversibility, Uncertainty and Underemployment Equilibria

Author

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  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Licandro, Omar

    (FEDEA, Madrid; University Carlos III, Madrid)

Abstract

In a competitive overlapping generation model, underutilization of labor and equipment can be due to the combinaison 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

  • de la Croix, David & Licandro, Omar, 1993. "Irreversibility, Uncertainty and Underemployment Equilibria," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1994028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Oct 1994.
  • Handle: RePEc:ctl:louvir:1994028
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    References listed on IDEAS

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    1. Diamond, Peter & Fudenberg, Drew, 1989. "Rational Expectations Business Cycles in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 606-619, June.
    2. Bent Hansen, 1970. "Excess Demand, Unemployment, Vacancies, and Wages," The Quarterly Journal of Economics, Oxford University Press, vol. 84(1), pages 1-23.
    3. Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
    4. Sneessens, Henri R., 1987. "Investment and the inflation-unemployment tradeoff in a macroeconomic rationing model with monopolistic competition," European Economic Review, Elsevier, vol. 31(3), pages 781-808, April.
    5. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
    6. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
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    Cited by:

    1. 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.
    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.

    More about this item

    Keywords

    underemployment; underutilization; irreversibility; poverty trap; endogenous fluctuations;

    JEL classification:

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

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