Non-separable utility function and indeterminacy of equilibrium in a model with human capital

Abstract

This paper shows that non-separability of utility function may produce indeterminacy of equilibrium in the representative agent models with labor leisure choice. By using a two-sector model of endogenous growth, we show that if the utility function is not additively separable between consumption and leisure, indeterminacy may emerge even in the absence of external increasing returns.