Abstract
In this paper, we show that consumption externalities are a source of equilibrium indeterminacy in a growth model with endogenous labor supply. In particular, when the marginal rate of substitution (MRS) between an agent's own consumption and the others' consumption is constant along the equilibrium path, the equilibrium does not exhibit indeterminacy. In contrast, when that MRS is not constant, the equilibrium may exhibit indeterminacy even if the elasticity of the labor demand is smaller than the elasticity of the Frisch labor supply.
Original language | English |
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Pages (from-to) | 2883-2902 |
Number of pages | 20 |
Journal | Journal of Economic Dynamics and Control |
Volume | 32 |
Issue number | 9 |
DOIs | |
Publication status | Published - Sept 2008 |
Keywords
- Consumption externalities
- Labor supply
- Indeterminacy