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Sustained Output Growth Under Uncertainty: A Simple Model With Human Capital

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    Abstract

    In a model where agents use their labour/education choice to adjust their consumption profile over time, I show that the impact of uncertainty on growth depends, critically, on agents’ attitudes towards risk, reflected by the coefficient of relative risk aversion. In this respect, the well known result from the literature on ‘saving under uncertainty’ can be extended into a broader context, whereby the intertemporal profile of consumption is determined via human capital accumulation rather than saving and physical capital investment.

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    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/DV_2007_20.pdf
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    Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_20.

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    Date of creation: Aug 2007
    Date of revision: Aug 2007
    Handle: RePEc:lbo:lbowps:2007_20

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    Keywords: Growth; Uncertainty;

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    1. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
    2. Razin, Assaf, 1972. "Optimum Investment in Human Capital," Review of Economic Studies, Wiley Blackwell, vol. 39(4), pages 455-60, October.
    3. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu & Ennio Stacchetti, 2005. "Fluctuations in Convex Models of Endogenous Growth I: Growth Effects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 780-804, October.
    4. Levhari, David & Srinivasan, T N, 1969. "Optimal Savings under Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 153-63, April.
    5. Mirman, Leonard J, 1971. "Uncertainty and Optimal Consumption Decisions," Econometrica, Econometric Society, vol. 39(1), pages 179-85, January.
    6. Smith, R Todd, 1996. "Cyclical Uncertainty, Precautionary Saving and Economic Growth," Economica, London School of Economics and Political Science, vol. 63(251), pages 477-94, August.
    7. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:
    1. Ragchaasuren Galindev, 2008. "Uncertainty, Learning And Growth," Manchester School, University of Manchester, vol. 76(5), pages 539-548, 09.

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