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Internal vs. External Habit Formation in a Growing Economy with Overlapping Generations

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  • Masako Ikefuji
  • Kazuo Mino

Abstract

This paper explores the roles of internal and external habit formation in a simple model of endogenous growth with overlapping generations. Unlike the representative agent settings in which the distinction between internal and external habits may not yield significant qualitative differences in working of the model economy, we show that the internal and external habit persistence in overlapping generations economies may have qualitatively different effects on the steady-state characterization as well as on the dynamic behavior of the economy. We also confirm that in an overlapping generations framework, whether the habits in the utility function takes subtractive or multiplicative forms may be critical both for long-run growth and for transitional dynamics.

Suggested Citation

  • Masako Ikefuji & Kazuo Mino, 2009. "Internal vs. External Habit Formation in a Growing Economy with Overlapping Generations," ISER Discussion Paper 0750, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0750
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    References listed on IDEAS

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    Cited by:

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    4. Daimer Higuita López, 2015. "Hábitos y habitus en la transformación cultural: estudio de una organización del sector energético," Revista Facultad de Ciencias Económicas, Universidad Militar Nueva Granada, vol. 0(1), pages 235-250, June.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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