Consumption externality and indeterminacy under increasing returns to scale and endogenous capital depreciation |
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| Institution: | 1. School of Economics, Central University of Finance and Economics, Beijing 100081, China;2. China Economics and Management Academy, Central University of Finance and Economics, Beijing 100081, China;1. University of Hohenheim, Germany;2. Ministry of Finance and Public Administration, Madrid, Spain;1. Department of Economics, Western Michigan University, 1903 West Michigan Ave., Kalamazoo, MI 49008, USA;2. Centre for Financial Econometrics, Deakin University, 221 Burwood Hwy., Melbourne, Victoria, 3125, Australia |
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| Abstract: | This paper incorporates negative consumption externality embodying “jealousy” and “running away from the Joneses” into Guo and Lansing (2007)'s model with production externality and endogenous depreciation, and examines how consumption externality helps to generate equilibrium indeterminacy together with production externality. Specifically, the existence of consumption externality reduces the upper and lower bounds of production externality for local indeterminacy, and when the degree of consumption externality increases, the upper and lower bounds of production externalities for local indeterminacy are both reduced. |
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