Accumulation Regimes in Dynastic Economies with Resource Dependence and Habit Formation
AbstractWe analyze the consequences of habit formation for income levels and long-term growth in an overlapping generations model with dynastic altruism and resource dependence. If the strength of habits is below a critical level, the competitive economy displays an altruistic (Ramsey-like) equilibrium where consumption sustainability obeys the Stiglitz condition, and habits yield permanent effects on output levels due to transitional effects on growth rates, capital profitability and speed of resource depletion. If the strength of habits is above the critical threshold, the economy achieves a selfish (Diamond-like) equilibrium in which habits increase growth rates and resource depletion even in the long run, sustainability conditions are less restrictive, consumption and output grow faster than in Ramsey equilibria, but welfare is much lower. Results hinge on resource dependence, as different depletion rates modify the intergenerational distribution of wealth and thereby the growth rate attained in either equilibrium.
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Bibliographic InfoPaper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 09/101.
Length: 43 pages
Date of creation: Jan 2009
Date of revision:
Dynastic Altruism; Overlapping Generations; Capital-Resource Model; Habit Formation;
Find related papers by JEL classification:
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-07 (All new papers)
- NEP-DGE-2009-02-07 (Dynamic General Equilibrium)
- NEP-MAC-2009-02-07 (Macroeconomics)
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