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Capital Accumulation and Habit Formation

Author

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  • Ronald Wendner

    (Department of Economics, Graz University, Austria)

Abstract

This paper investigates the impact of habits on savings and steady state capital intensity. Within the framework of an OLG economy with productive capital, a rise in the strength of habits increases savings if the steady state is asymptotically stable. Consequently, the steady state capital intensity as implied by an OLG model with habits is higher compared to the case with time-separable utility. If, however the initial steady state is unstable, a rise in the strength of habits lowers savings.

Suggested Citation

  • Ronald Wendner, 2002. "Capital Accumulation and Habit Formation," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-02d90007
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    References listed on IDEAS

    as
    1. Galor, Oded & Ryder, Harl E., 1989. "Existence, uniqueness, and stability of equilibrium in an overlapping-generations model with productive capital," Journal of Economic Theory, Elsevier, vol. 49(2), pages 360-375, December.
    2. Galor, Oded & Ryder, Harl E., 1991. "Dynamic efficiency of steady-state equilibria in an overlapping-generations model with productive capital," Economics Letters, Elsevier, vol. 35(4), pages 385-390, April.
    3. Lahiri, Amartya & Puhakka, Mikko, 1998. "Habit Persistence in Overlapping Generations Economies under Pure Exchange," Journal of Economic Theory, Elsevier, vol. 78(1), pages 176-186, January.
    4. Emmanuel Thibault & Bruno Decreuse, 2001. "Labor productivity and dynamic efficiency," Economics Bulletin, AccessEcon, vol. 4(13), pages 1-6.
    5. Scitovsky, Tibor, 1992. "The Joyless Economy: The Psychology of Human Satisfaction," OUP Catalogue, Oxford University Press, number 9780195073478.
    6. Ihori, Toshihiro, 1978. "The Golden Rule and the Role of Government in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 68(3), pages 389-396, June.
    7. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
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    Citations

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    Cited by:

    1. Luca Gori & Mauro Sodini, 2014. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 159-179, April.
    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.
    3. SCHUMACHER, Ingmar & ZOU, Benteng, 2006. "Habit in pollution. A challenge for intergenerational equity," LIDAM Discussion Papers CORE 2006006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Alonso-Carrera, Jaime & Caballé, Jordi & Raurich, Xavier, 2008. "Estate taxes, consumption externalities, and altruism," Journal of Public Economics, Elsevier, vol. 92(7), pages 1751-1764, July.
    5. Jos� BELBUTE & Ant�nio CALEIRO, 2009. "Measuring Persistence On Consumption In Portugal," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(2(8)_ Sum).
    6. J. M. Belbute & A. B. Caleiro, 2013. "Cross Country Evidence on Consumption Persistence," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 3(2), pages 440-440.
    7. Tetsuo Ono, 2002. "Is habitual consumption harmful to the environment?," Economics Bulletin, AccessEcon, vol. 17(1), pages 1-10.
    8. Schuhmacher, Ingmar & Zou, Benteng, 2011. "Pollution perception. An inquiry into intergenerational equity," Center for Mathematical Economics Working Papers 371, Center for Mathematical Economics, Bielefeld University.
    9. Schumacher, Ingmar & Zou, Benteng, 2008. "Pollution perception: A challenge for intergenerational equity," Journal of Environmental Economics and Management, Elsevier, vol. 55(3), pages 296-309, May.
    10. Takeshi Nakata, 2007. "Habit Formation, Parents' Education Spending, and Growth," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-9.
    11. Simone Valente, 2006. "Notes on Habit Formation and Socially Optimal Growth," CER-ETH Economics working paper series 06/48, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    12. Luciano Fanti, 2012. "Habits, aspirations and endogenous fertility," Discussion Papers 2012/142, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    13. Faria, Joao Ricardo & Mollick, Andre Varella, 2004. "The nominal theory of interest under habit formation: evidence for the U.S., 1959-2002," The North American Journal of Economics and Finance, Elsevier, vol. 15(3), pages 333-354, December.

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    More about this item

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D1 - Microeconomics - - Household Behavior

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