Saddles, Indeterminacy and Bifurcations in an Overlapping Generations Economy with a Renewable Resource

38 Pages Posted: 23 Mar 2001

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Markku Ollikainen

University of Helsinki - Department of Political and Economic Studies

Mikko Puhakka

University of Oulu - Department of Economics

Date Written: May 2000

Abstract

We incorporate a renewable resource into an overlapping generations model with standard, well-behaved utility and constant returns to scale production functions. Besides being a factor of production the resource serves as a store of value. We characterize dynamics, efficiency and stability of steady state equilibria and show that the nature of steady state equilibrium depends on the value of the intertemporal elasticity of substitution in consumption. In particular, if that elasticity is at least half, but not exactly one, stationary equilibria are saddle points. The stationary equilibrium is stable when the intertemporal elasticity of substitution is unity. For smaller values of that elasticity we use a parametric example to demonstrate the existence of stable equilibria (indeterminacy) and a subcritical flip bifurcation. Hence, an overlapping generations economy with a renewable resource can display cycles and indeterminacy even in the absence of externalities or imperfect competition.

Keywords: Overlapping generations, renewable resources, bifurcations

JEL Classification: D90, Q20, C62

Suggested Citation

Koskela, Erkki and Ollikainen, Markku and Puhakka, Mikko, Saddles, Indeterminacy and Bifurcations in an Overlapping Generations Economy with a Renewable Resource (May 2000). CESifo Working Paper Series No. 298. Available at SSRN: https://ssrn.com/abstract=263791

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Markku Ollikainen

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

Mikko Puhakka

University of Oulu - Department of Economics ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

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