On the existence of nonoptimal equilibria in dynamic stochastic economies

Abstract

The question of the existence of the stationary equilibrium for distorted versions of the standard neo-classical growth model is addressed in this paper. The conditions presented guaranteeing the existence of nontrivial equilibrium for the class of economies under study are simple and intuitively appealing, while the existence proof developed is elementary. Examples are given illustrating that economies with distortional taxation, endogenous growth with externalities, and monopolistic competition can all fit into the framework provided. Journal of Economic Literature Classification Numbers: C62, E30, E60. © 1995 Academic Press, Inc.