Endogenous growth cycles in continuous time

Document Type

Article

Publication Title

Journal of Economics=Zeitshrift fur Nationalokonomie

Abstract

The endogenous dynamics of a closed constant returns multi-market economy are examined in which agents face downward sloping demand. The trigger for growth in this model is a technological change that warrants costly adjustment in input quantities by agents. In the resulting dynamic game, relative prices within markets remain constant. Consequently, all own price elasticities are constant. In markets characterized by lower cost of capital the unique outcome is collusion in which agents do not incur adjustment cost and there is no adoption of new technology. But in other markets a unique non-cooperative equilibrium exists in which agents do incur the cost of adopting the new technology. Only three specifications of adjustment costs are feasible. Output increases along an S-shaped time path with or without a non-explosive cyclical component.

Publication Date

1-4-2004

Publisher

Springer-Verlag Wien

Volume

Vol.81

Issue

Iss.2

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