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Why Is Risk Aversion Essentially Important for Endogenous Economic Growth?

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  • Harashima, Taiji

Abstract

The familiar condition for a balanced growth path indicates that a household’s attitude toward risk plays a significantly important role for endogenous economic growth, but the mechanism behind this importance has not been sufficiently examined. In this paper, I show that in the process of endogenous growth, the decreasing rate of marginal utility is kept constant and the household’s quickness of response to new technologies determines the growth rate. Quickness of response to new technology and degree of risk aversion are quite similar. Given a constant decreasing rate of marginal utility, if on average households in a country are more cautious and respond less quickly to new technologies, firms in that country will invest less in new technologies. As a result, the endogenous economic growth rate of the country will be lower than that of others. If people respond more quickly, the growth rate will be higher.

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  • Harashima, Taiji, 2020. "Why Is Risk Aversion Essentially Important for Endogenous Economic Growth?," MPRA Paper 101011, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101011
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    References listed on IDEAS

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    Cited by:

    1. Harashima, Taiji, 2021. "Mechanisms that Make Economic Inequality Increase in Democratic Countries," MPRA Paper 108535, University Library of Munich, Germany.

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    More about this item

    Keywords

    Decreasing rate of marginal utility; Endogenous economic growth; Risk aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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