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Fractals and Self-Similarity in Economics: the Case of a Stochastic Two-Sector Growth Model

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  • La Torre, Davide

    ()

  • Marsiglio, Simone

    ()

  • Privileggi, Fabio

    ()

Abstract

We study a stochastic, discrete-time, two-sector optimal growth model in which the production of the homogeneous consumption good uses a Cobb-Douglas technology, combining physical capital and an endogenously determined share of human capital. Education is intensive in human capital as in Lucas (1988), but the marginal returns of the share of human capital employed in education are decreasing, as suggested by Rebelo (1991). Assuming that the exogenous shocks are i.i.d. and affect both physical and human capital, we build specific configurations for the primitives of the model so that the optimal dynamics for the state variables can be converted, through an appropriate log-transformation, into an Iterated Function System converging to an invariant distribution supported on a generalized Sierpinski gasket.

Suggested Citation

  • La Torre, Davide & Marsiglio, Simone & Privileggi, Fabio, 2011. "Fractals and Self-Similarity in Economics: the Case of a Stochastic Two-Sector Growth Model," POLIS Working Papers 157, Institute of Public Policy and Public Choice - POLIS.
    • Handle: RePEc:uca:ucapdv:157
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    File URL: http://polis.unipmn.it/pubbl/RePEc/uca/ucapdv/privileggi185.pdf
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    References listed on IDEAS

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    1. Mitra, Tapan & Privileggi, Fabio, 2005. "Cantor Type Attractors in Stochastic Growth Models," POLIS Working Papers 43, Institute of Public Policy and Public Choice - POLIS.
    2. Gardini, Laura & Hommes, Cars & Tramontana, Fabio & de Vilder, Robin, 2009. "Forward and backward dynamics in implicitly defined overlapping generations models," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 110-129, August.
    3. Nishimura Kazuo & Sorger Gerhard, 1996. "Optimal Cycles and Chaos: A Survey," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 1(1), pages 1-20, April.
    4. Stefano Maria Iacus & Davide La Torre, 2002. "Approximating distribution functions by iterated function systems," Departmental Working Papers 2002-03, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    5. Mitra, Tapan & Privileggi, Fabio, 2003. "Cantor Type Invariant Distributions in the Theory of Optimal Growth under Uncertainty," Working Papers 03-09, Cornell University, Center for Analytic Economics.
    6. Davide La Torre & Herb Kunze & Ed Vrscay, 2006. "Contractive multifunctions, fixed point inclusions and iterated multifunction systems," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1025, Universitá degli Studi di Milano.
    7. Mitra, Tapan & Privileggi, Fabio, 2009. "On Lipschitz continuity of the iterated function system in a stochastic optimal growth model," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 185-198, January.
    8. Boldrin, Michele & Montrucchio, Luigi, 1986. "On the indeterminacy of capital accumulation paths," Journal of Economic Theory, Elsevier, vol. 40(1), pages 26-39, October.
    9. Davide LA TORRE & Edward R. VRSCAY & Mehran EBRAHIMI & Michael F. BARNSLEY, 2008. "Measure-valued images, associated fractal transforms and the affine self-similarity of images," Departmental Working Papers 2008-45, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    10. Tapan Mitra & Luigi Montrucchio & Fabio Privileggi, 2003. "The nature of the steady state in models of optimal growth under uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(1), pages 39-71, December.
    11. Davide LA TORRE & Franklin MENDIVIL, 2007. "Iterated function systems on multifunctions and inverse problems," Departmental Working Papers 2007-32, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    12. Davide LA TORRE & Edward R. VRSCAY, 2008. "A generalized fractal transform for measure-valued images," Departmental Working Papers 2008-38, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    13. Nishimura, Kazuo & Yano, Makoto, 1995. "Nonlinear Dynamics and Chaos in Optimal Growth: An Example," Econometrica, Econometric Society, vol. 63(4), pages 981-1001, July.
    14. L. Montrucchio & F. Privileggi, 1999. "Fractal steady states instochastic optimal control models," Annals of Operations Research, Springer, vol. 88(0), pages 183-197, January.
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    Cited by:

    1. La Torre, Davide & Marsiglio, Simone & Privileggi, Fabio, 2018. "Fractal Attractors in Economic Growth Models with Random Pollution Externalities," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201801, University of Turin.
    2. La Torre, Davide & Marsiglio, Simone & Mendivil, Franklin & Privileggi, Fabio, 2016. "Fractal Attractors and Singular Invariant Measures in Two-Sector Growth Models with Random Factor Shares," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201620, University of Turin.
    3. Davide La Torre & Simone, Marsiglio & Mendivil, Franklin & Privileggi, Fabio, 2015. "Self-Similar Measures in Multi-Sector Endogenous Growth Models," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201509, University of Turin.

    More about this item

    Keywords

    fractals; iterated function system; self-similarity; Sierpinski gasket; stochastic growth;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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