ON THE IMPACT OF HETEROGENEITY ON INDETERMINACY

Christian Ghiglino and Marielle Olszak-Duquenne

International Economic Review, 2005, vol. 46, issue 1, 171-188

Abstract: Some recent research indicates that the occurrence of indeterminacy in models with externalities may be overstated because these models ignore agents' heterogeneity. We consider a neoclassical two-sector growth model with technological externalities. Agents are heterogeneous with respect to their shares of the initial stock of capital and in labor endowments. We find that the sign of the effect of inequality on indeterminacy is not pinned down by the standard properties of preferences. However, when the inverse of absolute risk aversion is a convex (respectively concave) function, homogeneity (heterogeneity) tends to neutralize the external effects and eliminate indeterminacy. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2005
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