Competitive equilibrium cycles with endogenous labor

Stefano Bosi (), Francesco Magris and Alain Venditti
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Stefano Bosi: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne

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Abstract: In this paper, we study a two-sector optimal growth model with elastic labor supply. We show that the modified golden rule is saddle-point stable when the investment good is capital intensive. To characterize stability with a capital intensive consumption good, we focus on either additively separable or homothetic preferences. In the first specification, we show that optimal oscillations require the elasticity of intertemporal substitution in consumption to be high enough while the elasticity of labor needs to be low enough. At the same time, we prove that with a linear utility in leisure the modified golden rule is always saddle-point stable. In the second specification for preferences, we show that the local dynamic properties of the optimal path depend instead on the shares of consumption and leisure into total utility. We prove that endogenous fluctuations are even more likely with homothetic preferences. © 2004 Elsevier B.V. All rights reserved.

Keywords: Bifurcation; Elastic labor supply; Endogenous fluctuations; Two-sector models (search for similar items in EconPapers)
Date: 2005-04
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Citations: View citations in EconPapers (18)

Published in Journal of Mathematical Economics, 2005, 41 (3), pp.325--349. ⟨10.1016/j.jmateco.2003.11.010⟩

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Journal Article: Competitive equilibrium cycles with endogenous labor (2005)
Working Paper: Competitive Equilibrium Cycles with Endogenous Labor (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02877998

DOI: 10.1016/j.jmateco.2003.11.010

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