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A two sector endogenous growth model with habit formation

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  • Hiraguchi, Ryoji

Abstract

In this paper, we study an endogenous growth model with physical and human capital in which consumption habits enter the utility function multiplicatively. We show that although the utility function with multiplicative habits is nonconcave and unbounded, an interior optimal growth path still exists, it is uniquely determined and it converges to a balanced growth path. We also find that habit formation in consumption lowers the convergence speed of the optimal path toward the balanced growth path.

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  • Hiraguchi, Ryoji, 2011. "A two sector endogenous growth model with habit formation," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 430-441, April.
    • Handle: RePEc:eee:dyncon:v:35:y:2011:i:4:p:430-441
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    Cited by:

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    2. Min Fu & Xinyu Ye & Lixin Tian & Bingyue Wan, 2023. "Green Low-Carbon Extraction Behavior and Realization of Carbon Rebalancing Evolution," Sustainability, MDPI, vol. 15(6), pages 1-36, March.
    3. Liutang Gong & Wei Wang, 2019. "Diverse Growth Patterns with External Habit Formation," Economics Bulletin, AccessEcon, vol. 39(2), pages 1418-1423.
    4. Morhaim, Lisa & Ulus, Ayşegül Yıldız, 2023. "On history-dependent optimization models: A unified framework to analyze models with habits, satiation and optimal growth," Journal of Mathematical Economics, Elsevier, vol. 105(C).
    5. Wei Wang, 2021. "Observational equivalence of balanced growth with external habit formation," Australian Economic Papers, Wiley Blackwell, vol. 60(3), pages 424-434, September.

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