Finite Horizon, Externalities, and Growth
AbstractThis paper investigates the impact of externalities on economic growth in an AK model. In contrast to the existing literature, the paper considers finitely-lived agents along the continuous time, overlapping generations literature. A series of new results, not holding for infinitely-lived agent economies, emerge. Consumption externalities generally introduce a distortion (inefficiency), even when labor supply is exogenous and there is no concurrent production externality. A negative consumption externality implies overconsumption, and growth is lower than optimal. Transition paths are considered. The model employed encompasses the infinitely-lived agent economy as a special case, thus helps understanding the differences in results between finite-horizon overlapping-generations and infinitely-lived agents economies.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8248.
Date of creation: 01 Jan 2008
Date of revision:
AK growth; externality; finite lifetime; overlapping generations; optimum;
Find related papers by JEL classification:
- 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
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-21 (All new papers)
- NEP-DGE-2008-04-21 (Dynamic General Equilibrium)
- NEP-MAC-2008-04-21 (Macroeconomics)
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