On the minimum degree of returns to scale in sunspot models of the business cycle |
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Authors: | Thomas Hintermaier |
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Institution: | Institute for Advanced Studies (IHS), Vienna, Austria |
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Abstract: | Bennett and Farmer (J. Econ. Theory 93 (2000) 118) claim that the degree of increasing returns to scale required for indeterminacy in a single sector growth model can be lowered by allowing for preferences that are non-separable in consumption and leisure. In this paper I show that the example they give violates concavity. In a more general setup, which does not impose specific functional forms on utility, I prove that there are no concave utility functions compatible with indeterminacy if the elasticity of scale is lower than the inverse of the labor share in production. |
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Keywords: | Sunspots Externalities Indeterminacy Preferences |
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