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Non-Smooth Dynamics and Multiple Equilibria in a Cournt-Ramsey Model with Endogenous Markups

  • Paulo Brito
  • Luís Costa
  • Huw Dixon

We consider a Ramsey model with a continuum of Cournotian industries where free entry generates an endogenous markup. The model produces two different regimes, monopoly and oligopoly, resulting in non-smooth dynamics. We analyze the global dynamics of the model, demonstrating the model may exhibit heteroclinic orbits connecting multiple equilibria. Small transitory changes in parameters can lead to large permanent effects and there can be a Rostovian poverty trap separating a low-capital and high-markup equilibrium from a high-capital low-markup equilibrium. The paper applies recent results from applied mathematics for non-smooth dynamic systems.

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File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp142010.pdf
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Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2010/14.

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Date of creation: Sep 2010
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Handle: RePEc:ise:isegwp:wp142010
Contact details of provider: Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

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