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Growth And Indeterminacy In Dynamic Models With Externalities

Date Added: Dec 2010
Format: PDF

The authors study the indeterminacy of equilibria in infinite horizon capital accumulation models with technological externalities. The investigation encompasses models with bounded and unbounded accumulation paths, and models with one and two sectors of production. Under reasonable assumptions they find that equilibria are locally unique in one-sector economies. In economies with two sectors of production it is instead easy to construct examples where a positive external effect induces a two-dimensional manifold of equilibria converging to the same steady state (in the bounded case) or to the same constant growth rate (in the unbounded case).