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The Impact Of Capital And Income Risk On Long-Run Growth

  • Christiane Clemens

    (University of Hannover)

The paper analyzes the effects of individual--specific and economy--wide productivity shocks on intertemporal decision--making of risk averse agents. We focus especially on the consequences for long--run growth. By contrasting the most widely used models of modern growth theory, namely the AK-model and the learning by doing-model, it is shown that not only the degree of risk aversion but also the source of income as measured by the factor income distribution is crucial for the impact of the stochastic disturbances. In the presence of a pure capital risk, growth and welfare effects are different from those arising when agents are subject to capital and income risk.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2000 with number 212.

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Date of creation: 05 Jul 2000
Date of revision:
Handle: RePEc:sce:scecf0:212
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CEF 2000, Departament d'Economia i Empresa, Universitat Pompeu Fabra, Ramon Trias Fargas, 25,27, 08005, Barcelona, Spain

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  1. Maurice Obstfeld, 1992. "Risk-taking, global diversification, and growth," Discussion Paper / Institute for Empirical Macroeconomics 61, Federal Reserve Bank of Minneapolis.
  2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  3. Clemens, Christiane & Soretz, Susanne, 1997. "Welfare Effects of Income Taxation in a Model of Stochastic Growth," Hannover Economic Papers (HEP) dp-210, Leibniz Universit├Ąt Hannover, Wirtschaftswissenschaftliche Fakult├Ąt.
  4. Obstfeld, Maurice, 1994. "Evaluating risky consumption paths: The role of intertemporal substitutability," European Economic Review, Elsevier, vol. 38(7), pages 1471-1486, August.
  5. Stephen Turnovsky, 1998. "On the Role of Government in a Stochastically Growing Open Economy," Discussion Papers in Economics at the University of Washington 0073, Department of Economics at the University of Washington.
  6. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 82(3), pages 465-473.
  7. A. Sandmo, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Oxford University Press, vol. 37(3), pages 353-360.
  8. Philippe Weil, 1993. "Precautionary Savings and the Permanent Income Hypothesis," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 367-383.
  9. Philippe Weil, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 29-42.
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