Chaotic Asset Price Dynamics with Technology Choice and Imperfect Observation

Jing Zhang (), Takao Asano (), Akihisa Shibata () and Masanori Yokoo ()
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Jing Zhang: Okayama University
Takao Asano: Okayama University
Akihisa Shibata: Osaka University of Economics
Masanori Yokoo: Okayama University

No 1128, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: Asset price volatility, characterized by episodic booms and busts, is a prominent feature of real economies. To explain these phenomena, most existing literature has relied on bounded rationality or exogenous shocks. This paper studies land price dynamics within a rational agent general equilibrium model that incorporates endogenous technology choice. Entrepreneurs choose between a Leontief technology and a linear technology so as to maximize firm value, based on their relative productivity, but they can only observe the current land price with some noise. This informational friction results in probabilistic mixing of technology choices, leading to a continuous nonlinear land pricing map. We demonstrate that, under parameter restrictions that yield the Markov property, the resulting map exhibits observable chaos, and its invariant densities can be characterized analytically.

Keywords: Asset bubbles; Technology choice; Markov property; Chaotic dynamics (search for similar items in EconPapers)
JEL-codes: C61 G12 O33 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2026-06
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