Incomplete Market Dynamics in a Neoclassical Production Economy

George-Marios Angeletos and Laurent Calvet

Post-Print from HAL

Abstract: We investigate a neoclassical economy with heterogeneous agents, convex technologies and idiosyncratic production risk. Combined with precautionary savings, investment risk generates rich effects that do not arise in the presence of pure endowment risk. Under a finite-horizon, multiple growth paths and endogenous fluctuations can exist even when agents are very patient. In infinitehorizon economies, multiple steady states may arise from the endogeneity of risk-taking and interest rates instead of the usual wealth effects. Depending on the economy's parameters, the local dynamics around a steady state are locally unique, totally unstable or locally undetermined, and the equilibrium path can be attracted to a limit cycle. The model generates closed-form expressions for the equilibrium dynamics and easily extends to a variety of environments, including heterogeneous capital types and multiple sectors

Keywords: Entrepreneurial risk; Precautionary motive; Endogenous fluctuations; Poverty traps (search for similar items in EconPapers)
Date: 2005-08
References: Add references at CitEc
Citations: View citations in EconPapers (35)

Published in Journal of Mathematical Economics, 2005, 41 (4/5), pp.407-438. ⟨10.1016/j.jmateco.2004.09.005⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Incomplete-market dynamics in a neoclassical production economy (2005)
Working Paper: Incomplete Market Dynamics in a Neoclassical Production Economy (2005)
Working Paper: Incomplete Market Dynamics in a Neoclassical Production Economy (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00004728

DOI: 10.1016/j.jmateco.2004.09.005

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().