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Some foundations for multiplicative habits models

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  • Hiraguchi, Ryoji

Abstract

Consumption models with multiplicative habits are becoming increasingly popular. However, mathematical foundations of such models are incomplete because the utility function with multiplicative habits is not concave. This paper shows that an optimal consumption path exists and it satisfies the first order conditions. The paper also shows that when the production function is linear, consumption growth rate along the optimal path converges to a positive constant under several parametric restrictions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 3 (September)
Pages: 873-884

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:873-884

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Web page: http://www.elsevier.com/locate/inca/622617

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  1. Nishimura, Kazuo, 1985. "Competitive equilibrium cycles," Journal of Economic Theory, Elsevier, vol. 35(2), pages 284-306, August.
  2. Christopher D Carroll, 2000. "Solving Consumption Models with Multiplicative Habits," Economics Working Paper Archive 421, The Johns Hopkins University,Department of Economics.
  3. Christopher D. Carroll & Jody Overland & David N. Weil, 1997. "Comparison Utility in a Growth Model," NBER Working Papers 6138, National Bureau of Economic Research, Inc.
  4. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  5. Takashi Kamihigashi, 2001. "A Simple Proof of the Necessity of the Transversality Condition," Discussion Paper Series 116, Research Institute for Economics & Business Administration, Kobe University.
  6. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Working Papers UWEC-2004-09-P, University of Washington, Department of Economics, revised Jan 2004.
  7. Alonso-Carrera, Jaime & Caballe, Jordi & Raurich, Xavier, 2005. "Growth, habit formation, and catching-up with the Joneses," European Economic Review, Elsevier, vol. 49(6), pages 1665-1691, August.
  8. Juan Pablo RincÛn-Zapatero & Carlos RodrÌguez-Palmero, 2003. "Existence and Uniqueness of Solutions to the Bellman Equation in the Unbounded Case," Econometrica, Econometric Society, vol. 71(5), pages 1519-1555, 09.
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Cited by:
  1. Manuel Gómez, 2010. "A note on external habits and efficiency in the AK model," Journal of Economics, Springer, vol. 99(1), pages 53-64, February.
  2. Gomez Suarez, Manuel A., 2008. "Utility and production externalities, equilibrium efficiency and leisure specification," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1496-1519, December.
  3. Gómez Manuel A., 2010. "Endogenous Growth, Habit Formation and Convergence Speed," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-32, January.
  4. Hiraguchi, Ryoji, 2011. "A two sector endogenous growth model with habit formation," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 430-441, April.

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