Consumption Externality and Indeterminacy under Increasing Returns to Scale and Endogenous Capital Depreciation

Gaowang Wang and Heng-Fu Zou ()

No 593, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: This paper incorporates negative consumption externality embodying "jealousy" and "running away from the Joneses" into Guo and Lansing (2007)'s model with production externality and endogenous depreciation, and examines how consumption externality helps to generate equilibrium indeterminacy together with production externality. Specifically, the existence of consumption externality reduces the upper and lower bounds of production externality for local indeterminacy, and when the degree of consumption externality increases, the upper and lower bounds of production externalities for local indeterminacy are both reduced.

Keywords: Consumption Externality; Production Externality; Indeterminacy; Endogenous Depreciation (search for similar items in EconPapers)
JEL-codes: C62 E21 E22 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2014-01
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Consumption externality and indeterminacy under increasing returns to scale and endogenous capital depreciation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:wpaper:593

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