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A two sector endogenous growth model with habit formation

  • Hiraguchi, Ryoji

In this paper, we study an endogenous growth model with physical and human capital in which consumption habits enter the utility function multiplicatively. We show that although the utility function with multiplicative habits is nonconcave and unbounded, an interior optimal growth path still exists, it is uniquely determined and it converges to a balanced growth path. We also find that habit formation in consumption lowers the convergence speed of the optimal path toward the balanced growth path.

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File URL: http://www.sciencedirect.com/science/article/B6V85-51JF804-1/2/830e467a6d0d6744777b56c384e62e43
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 4 (April)
Pages: 430-441

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:4:p:430-441
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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