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Existence and stability of overconsumption equilibria

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  • Ponthiere, Gregory

Abstract

Growth models with endogenous mortality assume generally that life expectancy is increasing with output per capita and, thus, with individual consumption, whatever its level is. However, empirical evidence supports a U-shaped relationship between consumption and mortality, implying that the monotonicity of that relation is local but not global. This paper develops a two-period OLG model where life expectancy is a non-monotone function of consumption, and where agents form myopic anticipations about life expectancy. 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. We identify also conditions under which there exist long-run cycles in output and longevity around overconsumption equilibria.

Suggested Citation

  • Ponthiere, Gregory, 2011. "Existence and stability of overconsumption equilibria," Economic Modelling, Elsevier, vol. 28(1), pages 74-90.
  • Handle: RePEc:eee:ecmode:v:28:y:2011:i:1:p:74-90
    DOI: 10.1016/j.econmod.2010.09.022
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    4. Naimzada, Ahmad & Pireddu, Marina, 2016. "Endogenous evolution of heterogeneous consumers preferences: Multistability and coexistence between groups," Economics Letters, Elsevier, vol. 142(C), pages 22-26.

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    More about this item

    Keywords

    Longevity; Mortality; Growth; Overconsumption; OLG model;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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