Consumption externalities and equilibrium dynamics with heterogeneous agents

Kazuo Mino and Yasuhiro Nakamoto ()

Mathematical Social Sciences, 2012, vol. 64, issue 3, 225-233

Abstract: This paper explores the effect of consumption externalities on equilibrium dynamics of a standard neoclassical growth model in which there are two types of agents. To emphasize the presence of heterogeneous agents, we distinguish intergroup consumption externalities from intragroup consumption externalities. We show that if there are intragroup consumption externalities alone, then the steady state equilibrium satisfies saddle-point stability and the equilibrium path of the economy is uniquely determined. In contrast, even if the intragroup consumption externalities do not exist, the intergroup external effects of consumption may yield either instability or local indeterminacy of the steady-state equilibrium. In addition to analytical considerations, we show the relationship between the stability and the consumption externalities in numerical examples.

Date: 2012
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Related works:
Working Paper: Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents (2011)
Working Paper: Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:64:y:2012:i:3:p:225-233

DOI: 10.1016/j.mathsocsci.2012.04.001

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