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Industry Dynamics and Indeterminacy in an OLG Economy with Endogenous Occupational Choice

Author

Listed:
  • Maria José Gil-Moltó

    ()

  • Dimitrios Varvarigos

    ()

Abstract

We model an oligopolistic industry that supplies intermediate goods in an overlapping generations economy. Agents can choose whether to provide labour or to become entrepreneurs and compete in the industry. The idea that entry is determined through occupational choice has major implications for the industry’s dynamics. We find that the industry’s convergence to the steady state equilibrium occurs through cyclical fluctuations. Furthermore, dynamic the path of convergence is not uniquely determined, as it is partially determined by self-fulfilling expectations. These results imply that differences in economic performance may not necessarily reflect differences in either structural characteristics or initial conditions.

Suggested Citation

  • Maria José Gil-Moltó & Dimitrios Varvarigos, 2012. "Industry Dynamics and Indeterminacy in an OLG Economy with Endogenous Occupational Choice," Discussion Papers in Economics 12/09, Department of Economics, University of Leicester, revised Sep 2012.
  • Handle: RePEc:lec:leecon:12/09
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    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp12-09.pdf
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    References listed on IDEAS

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    1. Colciago, Andrea & Etro, Federico, 2010. "Real business cycles with Cournot competition and endogenous entry," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1101-1117, December.
    2. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2008. "Business cycles with free entry ruled by animal spirits," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3502-3519, November.
    3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    4. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 865-915.
    5. Boyan Jovanovic & Chung-Yi Tse, 2006. "Creative Destruction in Industries," NBER Working Papers 12520, National Bureau of Economic Research, Inc.
    6. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304-345.
    7. Federico Etro & Andrea Colciago, 2010. "Endogenous Market Structures and the Business Cycle," Economic Journal, Royal Economic Society, vol. 120(549), pages 1201-1233, December.
    8. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monopoly Power and Endogenous Product Variety: Distortions and Remedies," NBER Working Papers 14383, National Bureau of Economic Research, Inc.
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    12. Oded Galor, 1996. "Discrete Dynamical Systems," Working Papers 96-23, Brown University, Department of Economics.
    13. James Bergin & Dan Bernhardt, 2008. "Industry dynamics with stochastic demand," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 41-68.
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    Cited by:

    1. Vera Ivanova & Philip Ushchev, 2015. "When Ricardo Meets Chamberlin: A Simple Dynamic Model Of Monopolistic Competition," HSE Working papers WP BRP 99/EC/2015, National Research University Higher School of Economics.

    More about this item

    Keywords

    Dynamic general equilibrium; Firms’ entry; Industry dynamics; Oligopoly.;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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