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Sustained Output Growth Under Uncertainty: A Simple Model With Human Capital

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Abstract

In a model where agents use their labour/education choice to adjust their consumption profile over time, I show that the impact of uncertainty on growth depends, critically, on agents’ attitudes towards risk, reflected by the coefficient of relative risk aversion. In this respect, the well known result from the literature on ‘saving under uncertainty’ can be extended into a broader context, whereby the intertemporal profile of consumption is determined via human capital accumulation rather than saving and physical capital investment.

Suggested Citation

  • Dimitrios Varvarigos, 2007. "Sustained Output Growth Under Uncertainty: A Simple Model With Human Capital," Discussion Paper Series 2007_20, Department of Economics, Loughborough University, revised Aug 2007.
  • Handle: RePEc:lbo:lbowps:2007_20
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    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/DV_2007_20.pdf
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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Mirman, Leonard J, 1971. "Uncertainty and Optimal Consumption Decisions," Econometrica, Econometric Society, vol. 39(1), pages 179-185, January.
    3. Smith, R Todd, 1996. "Cyclical Uncertainty, Precautionary Saving and Economic Growth," Economica, London School of Economics and Political Science, vol. 63(251), pages 477-494, August.
    4. Assaf Razin, 1972. "Optimum Investment in Human Capital," Review of Economic Studies, Oxford University Press, vol. 39(4), pages 455-460.
    5. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu & Ennio Stacchetti, 2005. "Fluctuations in Convex Models of Endogenous Growth I: Growth Effects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 780-804, October.
    6. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    7. Jerusalem D. Levhari & T. N. Srinivasan, 1969. "Optimal Savings under Uncertainty," Review of Economic Studies, Oxford University Press, vol. 36(2), pages 153-163.
    8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Ragchaasuren Galindev, 2008. "Uncertainty, Learning And Growth," Manchester School, University of Manchester, vol. 76(5), pages 539-548, September.

    More about this item

    Keywords

    Growth; Uncertainty;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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