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Neoclassical Growth with Limited Commitment

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  • Dirk Krueger
  • Harald Uhlig

Abstract

We characterize the stationary equilibrium of a continuous-time neoclassical production economy with capital accumulation in which agents can insure against idiosyncratic income risk by trading state-contingent assets, subject to limited commitment constraints that rule out short-selling. For an N-state Poisson labor productivity process we provide the household consumption-asset allocation, stationary asset distribution and aggregate capital supply. When production is Cobb-Douglas, when productivity takes two values, of which one is zero, and when agents have log-utility, we calculate the equilibrium interest rate, capital stock and consumption distribution in closed form, including its comparative statics change with respect to idiosyncratic income risk.

Suggested Citation

  • Dirk Krueger & Harald Uhlig, 2022. "Neoclassical Growth with Limited Commitment," NBER Working Papers 30518, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30518
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    Cited by:

    1. Gersbach, Hans & Rochet, Jean-Charles & von Thadden, Ernst-Ludwig, 2023. "Public Debt and the Balance Sheet of the Private Sector," TSE Working Papers 23-1412, Toulouse School of Economics (TSE).
    2. Dirk Krueger & Fulin Li & Harald Uhlig, 2024. "Neoclassical Growth Transition Dynamics with One-Sided Commitment," NBER Working Papers 32880, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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