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Evolution of the Distribution of Assets in the Neoclassical Growth Model

Author

Listed:
  • Francesc Obiols-Homs

    () (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

  • Carlos Urrutia

    () (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

We study the evolution of the distribution of assets in a deterministic version of the Neoclassical Growth Model with log-utility, a minimum consumption requirement, and Cobb-Douglas technology. Agents are heterogeneous in their initial endowment of assets only. The dynamics of the aggregate variables behaves as in a standard representative agent model. We prove that the disparity in assets decreases monotonically in a transition to the steady state from below, as long as (i) the minimum consumption requirement is zero or negative, or (ii) the consumption requirement is positive but not too large and the initial capital stock is large enough. This result is not based on a local approximation of the model around the steady state, nor on numerical computations, as it has been the case in previous literature. We also show how a positive minimum consumption requirement or a small elasticity of substitution between capital and labor can generate non-monotonic paths for the disparity in assets along a transition. Our work extends the result in Chatterjee (1994) on the evolution of the distribution of lifetime wealth (or consumption) to the evolution of the distribution of assets (or capital).

Suggested Citation

  • Francesc Obiols-Homs & Carlos Urrutia, 2002. "Evolution of the Distribution of Assets in the Neoclassical Growth Model," Working Papers 0212, Centro de Investigacion Economica, ITAM.
  • Handle: RePEc:cie:wpaper:0212
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    File URL: http://ftp.itam.mx/pub/academico/inves/obiols/02-12.pdf
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    References listed on IDEAS

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    1. Stiglitz, Joseph E, 1969. "Distribution of Income and Wealth among Individuals," Econometrica, Econometric Society, vol. 37(3), pages 382-397, July.
    2. Hernandez D, Alejandro, 1991. "The dynamics of competitive equilibrium allocations with borrowing constraints," Journal of Economic Theory, Elsevier, vol. 55(1), pages 180-191, October.
    3. Alvarez-Pelaez, Maria J. & Diaz, Antonia, 2005. "Minimum consumption and transitional dynamics in wealth distribution," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 633-667, April.
    4. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
    5. Jaume Ventura & Francesco Caselli, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September.
    6. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
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    Cited by:

    1. Maria Jose Alvarez & Antonia Diaz, "undated". "Minimum consuption, transitional dynamics ana the kuznets curve," Working Papers 2000-03, FEDEA.
    2. Alvarez-Pelaez, Maria J. & Diaz, Antonia, 2005. "Minimum consumption and transitional dynamics in wealth distribution," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 633-667, April.

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