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Markov Perfect Equilibria in the Ramsey Model

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Abstract

We study the Ramsey (1928) model under the assumption that households act strategically. We compute the Markov perfect equilibrium for this model and compare it to the original, competitive equilibrium and to a strategic open-loop equilibrium proposed by Sorger (2002, 2005b). We show that, if households are identical, strategic behavior has no influence on the long run evolution of the economy. If households are heterogeneous, however, the Markov perfect equilibrium has properties that differ from those of the competitive and the open-loop equilibrium.

Suggested Citation

  • Paul Pichler & Gerhard Sorger, 2006. "Markov Perfect Equilibria in the Ramsey Model," Vienna Economics Papers vie0610, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie0610
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    1. Sorger, Gerhard, 2002. "On the Long-Run Distribution of Capital in the Ramsey Model," Journal of Economic Theory, Elsevier, vol. 105(1), pages 226-243, July.
    2. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
    3. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
    4. Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 375-382.
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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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