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CONSISTENT EXPECTATIONS EQUILIBRIA AND COMPLEX DYNAMICS IN RENEWABLE RESOURCE MARKETS

Published online by Cambridge University Press:  25 May 2001

Cars H. Hommes
Affiliation:
University of Amsterdam
J. Barkley Rosser,
Affiliation:
James Madison University

Abstract

Price fluctuations under adaptive learning in renewable resource markets such as fisheries are examined. Optimal fishery management with logistic fish population growth implies a backward-bending, discounted supply curve for bioeconomic equilibrium sustained yield. Higher discount rates bend supply backward more to generate multiple steady-state rational expectations equilibria. Under bounded rationality, adaptive learning of a linear forecasting rule generates steady-state, two-cycle as well as chaotic consistent expectations equilibria, which are self-fulfilling in sample average and autocorrelations. The possibility of “learning to believe in chaos” is robust and even enhanced by dynamic noise.

Type
Research Article
Copyright
© 2001 Cambridge University Press

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