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The macroeconomics of TANSTAAFL

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  • Grossmann, Volker
  • Steger, Thomas M.
  • Trimborn, Timo

Abstract

This paper shows that dynamic inefficiency can occur in dynamic general equilibrium models with fully optimizing, infinitely-lived households even in a situation with underinvestment. We identify necessary conditions for such a possibility and illustrate it in a standard R&D-based growth model. Calibrating the model to the US, we show that a moderate increase in the R&D subsidy indeed leads to an intertemporal free lunch (i.e., an increase in per capita consumption at all times). Hence, Milton Friedman's conjecture There ain't no such thing as a free lunch (TANSTAAFL) may not apply. --

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Bibliographic Info

Paper provided by University of Leipzig, Faculty of Economics and Management Science in its series Working Papers with number 101.

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Date of creation: 2011
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Handle: RePEc:zbw:leiwps:101

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Web page: http://www.wifa.uni-leipzig.de/en/dekanat.html
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Keywords: intertemporal free lunch; dynamic inefficiency; R&D-based growth; transitional dynamics;

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References

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  1. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  2. Ngo Van Long & Vincent Martinet, 2012. "Combining Rights and Welfarism: A New Approach to Intertemporal Evaluation of Social Alternatives," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 01-2012, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Volker Grossmann & Thomas Steger & Timo Trimborn, 2010. "Dynamically Optimal R&D Subsidization," CESifo Working Paper Series 3153, CESifo Group Munich.
  4. Jones, Charles I., 2005. "Growth and Ideas," Handbook of Economic Growth, Elsevier, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 16, pages 1063-1111 Elsevier.
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  12. Volker Grossmann & Thomas M. Steger & Timo Trimborn, 2010. "Quantifying Optimal Growth Policy," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c015_051, DEGIT, Dynamics, Economic Growth, and International Trade.
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  14. Grossmann, Volker & Steger, Thomas M., 2012. "Optimal growth policy: The role of skill heterogeneity," Working Papers 117, University of Leipzig, Faculty of Economics and Management Science.
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Citations

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Cited by:
  1. Prettner, Klaus & Werner, Katharina, 2014. "Human capital, basic research, and applied research: Three dimensions of human knowledge and their differential growth effects," Center for European, Governance and Economic Development Research Discussion Papers 186, University of Goettingen, Department of Economics.
  2. Andreas Schäfer & Thomas Steger, 2011. "Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale," CESifo Working Paper Series 3676, CESifo Group Munich.
  3. Casajus, André & Huettner, Frank, 2013. "Null players, solidarity, and the egalitarian Shapley values," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 58-61.
  4. Casajus, André, 2012. "Solidarity and fair taxation in TU games," Working Papers 111, University of Leipzig, Faculty of Economics and Management Science.
  5. Gawel, Erik, 2013. "Neuordnung der W-Besoldung: Ausgestaltung und verfassungsrechtliche Probleme der Komsumtionsregeln zur Anrechnung von Leistungsbezügen," Working Papers 115, University of Leipzig, Faculty of Economics and Management Science.
  6. Casajus, André & Hüttner, Frank, 2012. "Nullifying vs. dummifying players or nullified vs. dummified players: The difference between the equal division value and the equal surplus division value," Working Papers 110, University of Leipzig, Faculty of Economics and Management Science.
  7. Quaas, Georg & Köster, Robert, 2012. "Ein Modell für die Wirtschaftszweige der deutschen Volkswirtschaft: Das "MOGBOT" (Model of Germany's Branches of Trade)," Working Papers 106, University of Leipzig, Faculty of Economics and Management Science.
  8. Quaas, Georg, 2012. "Ein Nelson-Winter-Modell der deutschen Volkswirtschaft," Working Papers 112, University of Leipzig, Faculty of Economics and Management Science.
  9. Casajus, André, 2012. "The Shapley value without efficiency and additivity," Working Papers 114, University of Leipzig, Faculty of Economics and Management Science.

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