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Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents

Kazuo Mino and Yasuhiro Nakamoto ()

No 08-30, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

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 the intragroup externalities dominates the intrergroup external effects, then the steady state equilibrium satisfies saddle-point stability and the equilibrium path of the economy is uniquely determined. In contrast, if the intergroup external effects of consumption are strong enough, the steady-state equilibrium is either unstable or locally indeterminate. Based on the analytical as well as numerical considerations, we give intuitive implications of stability conditions.

Keywords: Consumption externalities; Equilibrium determinacy; Heterogeneous agents; Progressive taxation (search for similar items in EconPapers)
JEL-codes: E52 O42 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2008-09
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-net and nep-ure
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http://www2.econ.osaka-u.ac.jp/library/global/dp/0830.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 (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:0830

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