TITLE:
Endogenous Discounting and Global Indeterminacy
AUTHORS:
Giovanni Bella
KEYWORDS:
Endogenous Discounting; Global Indeterminacy; Pitchfork-Hopf Bifurcation
JOURNAL NAME:
Modern Economy,
Vol.4 No.11,
November
26,
2013
ABSTRACT: This paper innovates the literature on endogenous discounting in
environmental economics, by studying the global properties of the equilibrium
outside the small neighborhood of the steady state. The internalization of
individual consumption in the social discount rate is rich of powerful consequences
from the economic point of view, for it leads to a qualitative change in the
steady state and its transitional dynamics, so that the perfect foresight
equilibrium may not be unique, and thus both local and global indeterminacy can
eventually emerge. The main implication for decision making is that if
indeterminacy occurs, public policies become not sufficient to drive the
economy towards the long-run equilibrium. In particular, we show that the
onset of parametric restrictions for which both global indeterminacy in the
full R3 vector field, and a quasi-periodic
dynamics with trajectories wrapped around an invariant torus, may eventually
emerge.