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On the Ramsey equilibrium with heterogeneous consumers and endogenous labor supply

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  • Bosi, Stefano
  • Seegmuller, Thomas

Abstract

In this paper, we address the stability issue, stressing the role of labor supply, in a Ramsey model with heterogeneous households subject to borrowing constraints. Making labor supply endogenous leads us to prove the existence of two kinds of steady state: the one where everybody supplies labor, the other where only the most patient agent refrains from working. Going beyond models with inelastic labor supply, we show how preferences of impatient agents affect the saddle-path stability of each type of steady state and the occurrence of endogenous cycles. When their elasticity of intertemporal substitution in consumption exceeds one, instability and cycles are less likely, requiring lower degrees of capital-labor substitution. Conversely, elasticity values below one promote the emergence of fluctuations. We end the paper by showing the existence of the intertemporal equilibrium under market incompleteness, using a local approach based on the first-order conditions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 46 (2010)
Issue (Month): 4 (July)
Pages: 475-492

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Handle: RePEc:eee:mateco:v:46:y:2010:i:4:p:475-492

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Web page: http://www.elsevier.com/locate/jmateco

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Keywords: Saddle-path stability Endogenous cycles Heterogeneous agents Endogenous labor supply Borrowing constraint;

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References

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  1. Cuong Le Van & Manh-Hung Nguyen & Yiannis Vailakis, 2005. "Equilibrium dynamics in an aggregative model of capital accumulation with heterogeneous agents and elastic labor," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers), HAL halshs-00197560, HAL.
  2. Jean-Michel Grandmont & P, A, Pintus & R, De Vilder, 1997. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Working Papers, Centre de Recherche en Economie et Statistique 97-28, Centre de Recherche en Economie et Statistique.
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  12. Becker, Robert A & Foias, Ciprian, 1994. "The Local Bifurcation of Ramsey Equilibrium," Economic Theory, Springer, Springer, vol. 4(5), pages 719-44, August.
  13. Jean-Philippe Garnier & Kazuo Nishimura & Alain Venditti, 2007. "Intertemporal substitution in consumption, labor supply elasticity and sunspot fluctuations in continuous-time models," International Journal of Economic Theory, The International Society for Economic Theory, The International Society for Economic Theory, vol. 3(4), pages 235-259.
  14. Sorger, Gerhard, 1994. "On the Structure of Ramsey Equilibrium: Cycles, Indeterminacy, and Sunspots," Economic Theory, Springer, Springer, vol. 4(5), pages 745-64, August.
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Citations

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Cited by:
  1. Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2014. "On existence and bubbles of Ramsey equilibrium with borrowing constraints," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers), HAL halshs-01020635, HAL.
  2. repec:hal:journl:halshs-00331299 is not listed on IDEAS
  3. repec:ipg:wpaper:201404 is not listed on IDEAS
  4. Stefano Bosi & Thomas Seegmuller, 2008. "On the role of progressive taxation in a Ramsey Model with heterogeneous households," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne v08051, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2012. "On Existence and Bubbles of Ramsey Equilibrium with Borrowing Constraints," AMSE Working Papers, Aix-Marseille School of Economics, Marseille, France 1231, Aix-Marseille School of Economics, Marseille, France, revised 11 Nov 2012.
  6. Kazuo Nishimura & Carine Nourry & Thomas Seegmuller & Alain Venditti, 2013. "Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents," AMSE Working Papers, Aix-Marseille School of Economics, Marseille, France 1314, Aix-Marseille School of Economics, Marseille, France, revised 08 Feb 2013.
  7. Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2013. "On existence, effciency and bubbles of Ramsey equilibrium with borrowing constraints," Working Papers, Development and Policies Research Center (DEPOCEN), Vietnam 15, Development and Policies Research Center (DEPOCEN), Vietnam.
  8. Stefano Bosi & Cuong Le Van, 2011. "On the Existence of a Ramsey Equilibrium with Endogenous Labor Supply and Borrowing Constraints," Working Papers, Development and Policies Research Center (DEPOCEN), Vietnam 24, Development and Policies Research Center (DEPOCEN), Vietnam.
  9. Kazuo Nishimura & Carine Nourry & Thomas Seegmuller & Alain Venditti, 2014. "On the (de)Stabilizing Effect of Public Debt In a Ramsey Model with Heterogeneous Agents," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University DP2014-03, Research Institute for Economics & Business Administration, Kobe University.
  10. repec:hal:psewpa:halshs-00793530 is not listed on IDEAS
  11. repec:hal:journl:halshs-00612131 is not listed on IDEAS
  12. Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2014. "On existence and bubbles of Ramsey equilibrium with borrowing constraints," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 14040, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  13. repec:ipg:wpaper:4 is not listed on IDEAS
  14. Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2013. "On Existence and Bubbles of Ramsey Equilibrium with Borrowing Constraints," Working Papers, HAL halshs-00793530, HAL.

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