Endogenous growth with addictive habits

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Publication details

JournalJournal of Mathematical Economics
DateE-pub ahead of print - 3 Dec 2014
DatePublished (current) - Jan 2015
Volume56
Number of pages11
Pages (from-to)15-25
Early online date3/12/14
Original languageEnglish

Abstract

In this paper, we investigate the global dynamics of an endogenous growth model with linear technology and addictive habits. We find feasible parameters’ conditions under which: (a) the resulting equilibrium consumption path is steeper than in a standard AK model; (b) endogenous fluctuations in the form of damping fluctuations around the balanced growth path emerge; (c) the Easterlin’s paradox emerges. The relevance of these results is explained comparing our findings with the results already known in the existing literature.

    Research areas

  • Habit formation, Consumption smoothing, Endogenous fluctuations

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