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On the Ramsey Equilibrium with heterogeneous consumers and endogenous labor supply

  • Stefano Bosi

    ()

    (EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - Université Lille II - Droit et santé - Université Lille 1 - Sciences et technologies - Université Charles-de-Gaulle Lille 3 - Sciences humaines et sociales - PRES Université Lille Nord de France, EPEE - Université d'Evry-Val d'Essonne)

  • Thomas Seegmuller

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)

In this paper, we address the stability issue, stressing the role of labor supply, in a Ramsey model with heterogeneous households subject to borrowing constraints. Making labor supply endogenous leads us to prove the existence of two kinds of steady state : the one where everybody supplies labor, the other where only the most patient agent refrains from working. Focusing on the latter and going beyond models with inelastic labor supply, we show how preferences of impatient agents affect the saddle-path stability and the occurence of endogenous cycles. When their elasticity of intertemporal substitution in consumption exceeds one, instability and cycles are less likely, requiring lower degrees of capital- labor substitution. Conversely, elasticity values below one promote the emergence of fluctuations.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00143421.

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Date of creation: Jun 2007
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Handle: RePEc:hal:cesptp:halshs-00143421
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