Existence and stability of overconsumption equilibria

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Existence and stability of overconsumption equilibria

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Grégory Ponthière

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Gregory Ponthiere

Abstract

Growth models with endogenous mortality assume generally that life expectancy is increasing with output per capita, and, thus, with individual consumption, whatever the consumption level is. However, empirical evidence on the effect of overconsumption and obesity on mortality tends to question that postulate. This paper develops a two-period OLG model where life expectancy is a non-monotonic function of consumption. The existence, uniqueness and stability of steady-state equilibria are studied. It is shown that overconsumption equilibria - i.e. equilibria at which consumption exceeds the level maximizing life expectancy - exist in highly productive economies with a low impatience. Stability analysis highlights conditions under which there exist non-converging cycles in output and longevity around overconsumption equilibria.

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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2009-38.

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Date of creation: 2009
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Handle: RePEc:pse:psecon:2009-38

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This paper has been announced in the following NEP Reports:

NEP-ALL-2009-10-24 (All new papers)
NEP-DGE-2009-10-24 (Dynamic General Equilibrium)

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