Multiple Equilibria and Indeterminacy in an Optimal Growth Model with Endogenous Capital Depreciation

This paper extends an otherwise standard one-sector neoclassical growth model by postulating that the depreciation rate of physical capital depends on the agent's efforts on maintenance and repairs. Specifically, we introduce endogenous depreciation into the standard optimal growth model via two different mechanisms and examine the steady state and the dynamics of the model economy qualitatively and quantitatively. We find that with plausibel parameter values, multiple equilibria and indeterminacy can arise in simply modified optimal growth model.