The dynamics of the Stiglitz policy in the RSS model

We examine a policy proposed by Stiglitz in the context of a multi-sector model proposed by Robinson, Solow, and Srinivasan (henceforth the RSS model) and recently reconsidered by Khan and Mitra. We characterize the policy by drawing on and extending dynamical systems theory in order to divide the parameter space into regions of a unique attracting cycle of each period and a region of no attracting cycles. This characterization allows us to establish the result that the policy is “bad” for almost all initial stocks for a range of parameter values, when we shift from a continuous-time to a discrete-time setting.

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