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Irreversibility, Uncertainty and Underemployment Equilibria

Author

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  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Licandro, Omar

    (FEDEA, Madrid; University Carlos III, Madrid)

Abstract

In a competitive overlapping generation model, underutilization of labor and equipment can be due to the combinaison of irreversibility of human capital, physical capital and technology with idiosyncratic productivity shocks. Irreversibilities and uncertainty generate an inefficient allocation of resources among sectors, which takes the form of underemployment and underutilization of capacities at the aggregate level and affects the equilibrium path of capital. We provide examples in which this missallocation, called structural "mismatch", can be responsible, a.o., for an "inescapable poverty trap", or for periodic orbits generating endogenous fluctuations in underemployment.

Suggested Citation

  • de la Croix, David & Licandro, Omar, 1993. "Irreversibility, Uncertainty and Underemployment Equilibria," LIDAM Discussion Papers IRES 1994028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Oct 1994.
    • Handle: RePEc:ctl:louvir:1994028
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    References listed on IDEAS

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    1. Diamond, Peter & Fudenberg, Drew, 1989. "Rational Expectations Business Cycles in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 606-619, June.
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    Cited by:

    1. Fagnart, Jean-Francois & Licandro, Omar & Sneessens, Henri R., 1997. "Capacity utilization and market power," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 123-140, November.
    2. Boretta, M & Cantù, L & Corti, M & del Favero, E, 1997. "Cubic phases of gangliosides in water: Possible role of the conformational bistability of the headgroup," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 236(1), pages 162-176.
    3. Anna Pestova, 2015. "Leading Indicators of the Business Cycle: Dynamic Logit Models for OECD Countries and Russia," HSE Working papers WP BRP 94/EC/2015, National Research University Higher School of Economics.
    4. Fagnart, Jean-Francois & Licandro, Omar & Sneessens, Henri, 1995. "Capacity utilization dynamics and market power," UC3M Working papers. Economics 3906, Universidad Carlos III de Madrid. Departamento de Economía.

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    More about this item

    Keywords

    underemployment; underutilization; irreversibility; poverty trap; endogenous fluctuations;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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