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Habit Formation and Preference Change with Capital and Renewable Resources

  • Wei-Bin Zhang

    (Ritsumeikan Asia Pacific University, College of International Management, Japan)

Background: Although there are many formal models about interactions among habit formation, preference change and the economic growth, only a few formal models examine implications of habit formation and preference change for the economic growth with resources. Objectives: This paper builds an economic growth model with endogenous physical capital, renewable resources, habit formation and preference. Methods: Although it is influenced by the Ramsey growth theory with time preference and habit formation, the paper applies a new approach to the household behaviour. Results: We plot the motion of the economy and conduct a comparative dynamic analysis with regard to certain parameters to obtain insights into interactions between the preference and the economic structural changes. Conclusions: We have shown that habit formation and preference change have significant effects on the economic grow and resources utilization both with regard to the transitional paths and the long-run equilibrium.

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Article provided by Society for Promotion of Business Information Technology (BIT) in its journal Business Systems Research.

Volume (Year): 4 (2013)
Issue (Month): 2 ()
Pages: 108-125

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Handle: RePEc:bit:bsrysr:v:4:y:2013:i:2:p:108-125
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