Endogenous strategic business cycles

Abstract

This paper examines an overlapping generations version of the Shapley-Shubik market game. We show existence of equilibria for the simple one commodity model and analyze the dynamics of the equilibrium trajectories generated in the model. Because of the non-linearities generated by strategic interaction of agents in the model, we find that complex and chaotic equilibrium dynamics are possible in this model for a much broader range of preferences than those for which Grandmont (Econometrica 53, No. 5 (1995), 995-1045) found complicated dynamics in the perfectly competitive version of this model. These results, then, provide an alternative to the usual technology-based explanation for the historical fact that business cycles became an important economic phenomenon only with the onset of industrialization. Journal of Economic Literature Classification Numbers: C72, C73, D51, L16. © 1998 Academic Press.