It is well known that economies of scale that are external to the individual decision makers can lead to self-fulfilling prophecies and the multiplicity or even indeterminacy of equilibrium. We argue that the importance of this source of multiplicity and indeterminacy is overstated in representative agent models, as they ignore the potential stabilizing effect of heterogeneity. We illustrate this in a version of Matsuyama's (1991) two-sector model with increasing returns to scale. Two main results are shown. First, sufficient homogeneity with respect to individual productivity leads to the instability and non-uniqueness of a given stationary state and the indeterminacy of the corresponding stationary state equilibrium. Second, sufficient heterogeneity leads to the global saddle-path stability and the uniqueness of a given stationary state and the global uniqueness of equilibrium.

Herrendorf, B., Valentinyi, A., Waldmann, R. (2000). Ruling out multiplicity and indeterminacy: The role of heterogeneity. REVIEW OF ECONOMIC STUDIES, 67(2), 295-307.

Ruling out multiplicity and indeterminacy: The role of heterogeneity

WALDMANN, ROBERT
2000-01-01

Abstract

It is well known that economies of scale that are external to the individual decision makers can lead to self-fulfilling prophecies and the multiplicity or even indeterminacy of equilibrium. We argue that the importance of this source of multiplicity and indeterminacy is overstated in representative agent models, as they ignore the potential stabilizing effect of heterogeneity. We illustrate this in a version of Matsuyama's (1991) two-sector model with increasing returns to scale. Two main results are shown. First, sufficient homogeneity with respect to individual productivity leads to the instability and non-uniqueness of a given stationary state and the indeterminacy of the corresponding stationary state equilibrium. Second, sufficient heterogeneity leads to the global saddle-path stability and the uniqueness of a given stationary state and the global uniqueness of equilibrium.
2000
Pubblicato
Rilevanza internazionale
Articolo
Sì, ma tipo non specificato
Settore SECS-P/01 - ECONOMIA POLITICA
English
Con Impact Factor ISI
EXTERNALITIES; ECONOMIES; GROWTH; MODELS
Herrendorf, B., Valentinyi, A., Waldmann, R. (2000). Ruling out multiplicity and indeterminacy: The role of heterogeneity. REVIEW OF ECONOMIC STUDIES, 67(2), 295-307.
Herrendorf, B; Valentinyi, A; Waldmann, R
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/54711
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