Chaotic Planning Solutions in the Textbook Model of Labor Market Search and Matching

J. Bhattacharya, H. Bunzel

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    Abstract

    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.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherMacroeconomics
    Number of pages20
    Volume2003-15
    Publication statusPublished - 2003

    Publication series

    NameCentER Discussion Paper
    Volume2003-15

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    Keywords

    • labour market
    • planning
    • matching
    • chaos
    • job search

    Cite this

    Bhattacharya, J., & Bunzel, H. (2003). Chaotic Planning Solutions in the Textbook Model of Labor Market Search and Matching. (CentER Discussion Paper; Vol. 2003-15). Tilburg: Macroeconomics.