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Indeterminacy in a model with production externality and inferiority in consumption

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  • Kazumichi Iwasa
  • Kazuo Nishimura

Abstract

We study the dynamic property of a constant returns two‐sector model with sector‐specific externality. In this study, we consider two types of consumption good, one of which is a pure consumption good and the other is a consumable capital good. Then, we examine the case where households tend to consume more pure consumption goods and consume less consumable capital ones. We show that if a consumable capital good is inferior it is possible that indeterminacy occurs around a steady state without capital intensity reversal between the private and the social levels.

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  • Kazumichi Iwasa & Kazuo Nishimura, 2022. "Indeterminacy in a model with production externality and inferiority in consumption," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 607-623, December.
    • Handle: RePEc:bla:ijethy:v:18:y:2022:i:4:p:607-623
    DOI: 10.1111/ijet.12324
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    1. Benhabib, Jess & Farmer, Roger E. A., 1996. "Indeterminacy and sector-specific externalities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 421-443, June.
    2. Jess Benhabib & Qinglai Meng & Kazuo Nishimura, 2012. "Indeterminacy Under Constant Returns to Scale in Multisector Economies," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 403-412, Springer.
    3. Eric Bond & Kazumichi Iwasa & Kazuo Nishimura, 2011. "A dynamic two country Heckscher–Ohlin model with non-homothetic preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(1), pages 171-204, September.
    4. Kazuo Nishimura & Koji Shimomura, 2012. "Trade and Indeterminacy in a Dynamic General Equilibrium Model," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 347-361, Springer.
    5. Jess Benhabib & Kazuo Nishimura, 2012. "Indeterminacy and Sunspots with Constant Returns," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 311-346, Springer.
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    Cited by:

    1. Takashi Kamihigashi, 2022. "Introduction to the special feature section on economic policy and risk management," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 552-553, December.

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