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Existence and stability of overconsumption equilibria

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  • Ponthiere, Gregory

Abstract

Growth models with endogenous mortality assume generally that life expectancy is increasing with output per capita and, thus, with individual consumption, whatever its level is. However, empirical evidence supports a U-shaped relationship between consumption and mortality, implying that the monotonicity of that relation is local but not global. This paper develops a two-period OLG model where life expectancy is a non-monotone function of consumption, and where agents form myopic anticipations about life expectancy. The existence, uniqueness and stability of steady-state equilibria are studied. It is shown that overconsumption equilibria -- i.e. equilibria at which consumption exceeds the level maximizing life expectancy -- exist in highly productive economies with a low impatience. We identify also conditions under which there exist long-run cycles in output and longevity around overconsumption equilibria.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 1-2 (January)
Pages: 74-90

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:74-90

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Longevity Mortality Growth Overconsumption OLG model;

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Cited by:
  1. PESTIEAU, Pierre & PONTHIERE, Grégory, . "The public economics of increasing longevity," CORE Discussion Papers RP -2464, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. repec:hal:wpaper:halshs-00676492 is not listed on IDEAS
  3. Gahramanov, Emin, 2013. "Survival misperception, time inconsistency, and implications for life-cycle saving and welfare," Economic Modelling, Elsevier, vol. 32(C), pages 539-550.

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