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Consumption Externalities and Capital Accumulation in an Overlapping Generations Economy

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  • Mino, Kazuo

Abstract

This paper extends the standard overlapping generations model of capital accumulation by introducing consumption externalities. It is assumed that each generation's felicity depends on the social level of benchmark consumption as well as on its own consumption. Since the benchmark consumption is represented by the average consumption of all agents, the contemporaneous consumption externalities are determined by both intragenerational and intergenerational interactions among the consumers. Given this setting, we show that even in a simple model with a logarithmic utility function, the presence of consumption externalities may significantly affect the dynamic behavior and steady-state characterization of the economy. We also reveal that the same conclusion holds in an endogenous growth model in which production externalities sustain continuing growth.

Suggested Citation

  • Mino, Kazuo, 2006. "Consumption Externalities and Capital Accumulation in an Overlapping Generations Economy," MPRA Paper 17016, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17016
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    References listed on IDEAS

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    Cited by:

    1. Kazuo Mino, 2008. "Growth And Bubbles With Consumption Externalities," The Japanese Economic Review, Japanese Economic Association, vol. 59(1), pages 33-53, March.
    2. Masako Ikefuji & Kazuo Mino, 2009. "Internal vs. External Habit Formation in a Growing Economy with Overlapping Generations," KIER Working Papers 676, Kyoto University, Institute of Economic Research.

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    More about this item

    Keywords

    overlapping generations; benchmark consumption; intergenerational externalities; intragenerational externalities;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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