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Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents

Kazuo Mino and Yasuhiro Nakamoto ()

No 792, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper explores the effect of consumption externalities on equilibrium dynamics of a standard neoclassical growth model in which there are two types of agents. To emphasize the presence of heterogenous agents, we distinguish intergroup consumption externalities from intragroup consumption externalities. We show that if there are intragroup consumption externalities alone, then the steady state equilibrium satisfies saddle-point stability and the equilibrium path of the economy is uniquely determined. In contrast, even if the intragroup consumption externalities do not exist, the intergroup external effects of consumption may yield either unstability or local indeterminacy of the steady-state equilibrium. In addition to analytical considerations, we show the relationship between the stability and the consumption externalities in numerical examples.

Keywords: consumption externalities; heterogeneous agents; progressive taxation; equilibrium determinacy (search for similar items in EconPapers)
JEL-codes: E52 O42 (search for similar items in EconPapers)
Pages: 29pages
Date: 2011-10
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
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http://www.kier.kyoto-u.ac.jp/DP/DP792.pdf (application/pdf)

Related works:
Journal Article: Consumption externalities and equilibrium dynamics with heterogeneous agents (2012) Downloads
Working Paper: Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents (2008) Downloads
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