Chaos and capacity utilization under increasing returns to scale

• Published in: Journal of economic behavior & organization 2011-02, Vol.77 (2), p.147-162
• Main Author: Stockman, David R.
• Format: Article
• Language: English
• Subjects: Capital; Chaos; Chaos theory; Cycles; Economic models; Economies of scale; Entropy; Equilibrium; Euler equation branching; Eulers equations; Externalities; Externality; Increasing returns to scale; Indeterminacy; Modelling; Production; Regime switching; Returns to scale; Studies; Topological entropy; Variable capacity utilization; Variable capacity utilization Increasing returns to scale Externality Indeterminacy Cycles Chaos Euler equation branching Regime switching [omega]-Chaos Topological entropy; ω-Chaos
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2010.10.002

▶ It has been shown that adding variable capacity utilization of capital to a one-sector model with a mild production externality can produce local indeterminacy. In this paper, I provide a global analysis of this model and provide sufficient conditions for the existence of Euler equation branching. I show that this branching allows for regime switching equilibria implying ω-chaos and positive topological entropy – two notions of chaotic behavior. It has been shown that adding variable capacity utilization of capital to a one-sector model with a mild production externality can produce local indeterminacy. In this paper, I provide a global analysis of this model and provide sufficient conditions for the existence of Euler equation branching. I show that this branching allows for regime switching equilibria implying ω-chaos and positive topological entropy – two notions of chaotic behavior.