Industry Dynamics and Indeterminacy in an OLG Economy with Endogenous Occupational Choice

We model an oligopolistic industry that supplies intermediate goods in an overlapping generations economy. Agents can choose whether to provide labour or to become entrepreneurs and compete in the industry. The idea that entry is determined through occupational choice has major implications for the industry’s dynamics. We find that the industry’s convergence to the steady state equilibrium occurs through cyclical fluctuations. Furthermore, dynamic the path of convergence is not uniquely determined, as it is partially determined by self-fulfilling expectations. These results imply that differences in economic performance may not necessarily reflect differences in either structural characteristics or initial conditions.