Local indeterminacy in continuous-time models: the role of returns to scale

Jean-Philippe Garnier (), Kazuo Nishimura and Alain Venditti

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Abstract: The aim of this paper is to discuss the role of the returns to scale at the private and social levels on the local determinacy properties of the steady state in a continuous-time two-sector economy with sector-specific externalities. First we show that when labor is inelastic, for any configuration of the returns to scale, local indeterminacy is obtained if there is a capital intensity reversal between the private and the social levels. Second, we prove that when labor is infinitely elastic, saddle-point stability is obtained as soon as the investment good sector has constant social returns while local indeterminacy arises if the investment good sector has increasing social returns, provided the consumption good is labor intensive at the social level and the elasticity of intertemporal substitution in consumption admits intermediary values. Finally, we show that local indeterminacy requires a low elasticity of labor when the investment good has constant social returns, but requires either low enough or large enough elasticity of labor when the investment good has increasing social returns.

Keywords: Sector-specific externalities; constant and increasing returns; intertemporal substitution in consumption; elastic labor; indeterminacy.; indeterminacy (search for similar items in EconPapers)
Date: 2008-05-22
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00281382
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: LOCAL INDETERMINACY IN CONTINUOUS-TIME MODELS: THE ROLE OF RETURNS TO SCALE (2013)
Working Paper: Local indeterminacy in continuous-time models: the role of returns to scale (2013)
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