This paper demonstrates that cyclical and chaotic planning solutions are possible in the standard textbook model of search and matching in labor markets. More specifically, it takes a discretetime adaptation of the continuous-time matching economy described in Pissarides (1990, 2001), and computes the solution to the dynamic planning problem.The solution is shown to be completely characterized by a first-order, non-linear map with a unique stationary solution.Additionally, the existence of a large number of periodic and even aperiodic non-stationary solutions is shown.Even when the well-known Li-Yorke and three-period cycle conditions for chaos are violated, we are able to verify the new Mitra (2001) su.cient condition for topological chaos.The implication is that even in a simple economy characterized by search and matching frictions, an omniscient social planner may have to contend with a fairly robust and bewildering variety of possible dynamic paths.
|Place of Publication||Tilburg|
|Number of pages||20|
|Publication status||Published - 2003|
|Name||CentER Discussion Paper|
- labour market
- job search