Indeterminacy arising in multi-sector economies

Jess Benhabib, Kazuo Nishimura

    Research output: Contribution to journalArticle

    Abstract

    We characterize a large class of constant-returns-to-scale economies with standard Cobb-Douglas production technologies, which, when perturbed to incorporate external effects, exhibit indeterminacy or multiple equilibria. The perturbations are constrained to maintain overall constant returns to scale. We characterize the magnitude of the external effects that yield multiple equilibria in terms of the parameters of the unperturbed economy. We show that it is very easy to construct large and plausible classes of economies that exhibit indeterminacy with constant returns to scale, and with external effects that are arbitrarily small.

    Original languageEnglish (US)
    Pages (from-to)485-506
    Number of pages22
    JournalJapanese Economic Review
    Volume50
    Issue number4
    DOIs
    StatePublished - Dec 1999

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    ASJC Scopus subject areas

    • Economics and Econometrics

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