Endogenous chaotic dynamics in transitional economies

This paper examines a model of labor market dynamics in an economy undergoing transition from command socialism to market capitalism. State sector layoffs are modeled as a function of forecasts made by state planners of private sector wages where the laidoff workers are to be re-employed. The state switches between using a high information cost perfect forecast and a free naive forecast in a system that resembles a cobweb supply-demand model. Under certain specifications and parameter values chaotic dynamics are shown to endogenously emerge along with several other varieties of complex dynamics including strange attractors, coexistence of infinitely many stable cycles, cascades of infinitely many period doubling bifurcations and fractal basin boundaries between coexisting non-chaotic attractors.