Preference Structure and Indeterminacy in Two-Sector Models of Endogenous Growth

This paper demonstrates that preference structure may play a pivotal role in generating indeterminacy in stylized models of endogenous growth. By examining two-sector models of endogenous growth with human capital formation, we show that if the utility function of the representative family is not additively separable between consumption and pure leisure time, indeterminacy may hold even if production technologies satisfy social constant returns. We also examine models with quality leisure in which leisure activities require human capital as well as time. It is shown that non-separable utility may be relevant for generating indeterminacy in this setting as well.