Economic growth and inequality in a model with robots

This paper develops an overlapping generations model with altruism and dynasties that vary in their intertemporal preferences and degree of altruism. The paper investigates the effects of robotization on economic growth and inequality. The model assumes that an individual representing a dynasty lives for two time periods and has one heir, to whom a non-zero bequest is left. The size of the bequest is one of the arguments of log-linear utility function. During the first time period, the individual works and receives a wage and also receives some bequest. The technology is described by a three-factor (labor, capital, and robots) Cobb-Douglas production function, in which a robot can fully replace one worker. It is shown that the dynamics of equilibrium paths depend on the price of robots. If robots are too expensive, they will not be produced or used, and the equilibrium path will converge to a certain steady-state equilibrium. As robots become slightly cheaper, the process of automation begins, and the equilibrium path converges toward a new steady-state equilibrium. The transition to a new equilibrium can lead to either an increase or a decline in the welfare of individual dynasties or society as a whole. If robots become even cheaper, the economy will settle on an infinite growth path. However, that does not mean that the welfare of all dynasties will grow infinitely. The income of some dynasties may even decline. In any case, automation will lead to greater inequality in the distribution of income and wealth.