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Optimal Growth When Tastes Are Inherited

Author

Listed:
  • de La Croix, D.
  • Michel, P.

Abstract

We adress the issue of optimal growth when standard-of-living aspirations are transmitted from one generation to the next. We derive the condition for the optimal solution to be stable in the saddle-point sense and show that this optimal solution may display damped oscillations even when the planner does not discount the utility of future generations (golden rule case). The decentralization of the optimal solution aims at correcting the inter-generational externality by use of an investment subsidy and allows to avoid socially damaging rushes on consumption in expansion periods. it also allows to stabilize output in the case of competitive economies displaying endogenous fluctuations.

Suggested Citation

  • de La Croix, D. & Michel, P., 1997. "Optimal Growth When Tastes Are Inherited," G.R.E.Q.A.M. 97a21, Universite Aix-Marseille III.
  • Handle: RePEc:fth:aixmeq:97a21
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    References listed on IDEAS

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    More about this item

    Keywords

    BUSINESS CYCLES ; EXTERNALITIES;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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