IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/101011.html
   My bibliography  Save this paper

Why Is Risk Aversion Essentially Important for Endogenous Economic Growth?

Author

Listed:
  • Harashima, Taiji

Abstract

The familiar condition for a balanced growth path indicates that a household’s attitude toward risk plays a significantly important role for endogenous economic growth, but the mechanism behind this importance has not been sufficiently examined. In this paper, I show that in the process of endogenous growth, the decreasing rate of marginal utility is kept constant and the household’s quickness of response to new technologies determines the growth rate. Quickness of response to new technology and degree of risk aversion are quite similar. Given a constant decreasing rate of marginal utility, if on average households in a country are more cautious and respond less quickly to new technologies, firms in that country will invest less in new technologies. As a result, the endogenous economic growth rate of the country will be lower than that of others. If people respond more quickly, the growth rate will be higher.

Suggested Citation

  • Harashima, Taiji, 2020. "Why Is Risk Aversion Essentially Important for Endogenous Economic Growth?," MPRA Paper 101011, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101011
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/101011/1/MPRA_paper_101011.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
    3. Joseph Zeira, 2011. "Innovations, patent races and endogenous growth," Journal of Economic Growth, Springer, vol. 16(2), pages 135-156, June.
    4. Cecilia García-Peñalosa & Jean-François Wen, 2008. "Redistribution and entrepreneurship with Schumpeterian growth," Journal of Economic Growth, Springer, vol. 13(1), pages 57-80, March.
    5. Harashima, Taiji, 2018. "Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State," MPRA Paper 88822, University Library of Munich, Germany.
    6. 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.
    7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    8. Ghiglino, Christian & Tabasso, Nicole, 2016. "Risk aversion in a model of endogenous growth," Journal of Mathematical Economics, Elsevier, vol. 64(C), pages 30-40.
    9. Thomas J. Sargent, 1973. "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 429-480.
    10. Charles I. Jones, 1999. "Growth: With or Without Scale Effects?," American Economic Review, American Economic Association, vol. 89(2), pages 139-144, May.
    11. Peretto, Pietro F, 1998. "Technological Change and Population Growth," Journal of Economic Growth, Springer, vol. 3(4), pages 283-311, December.
    12. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    13. Harashima, Taiji, 2010. "Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population," MPRA Paper 22521, University Library of Munich, Germany.
    14. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
    15. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    16. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
    17. Harashima, Taiji, 2012. "Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions," MPRA Paper 40938, University Library of Munich, Germany.
    18. Dinopoulos, Elias & Thompson, Peter, 1998. "Schumpeterian Growth without Scale Effects," Journal of Economic Growth, Springer, vol. 3(4), pages 313-335, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Harashima, Taiji, 2021. "Mechanisms that Make Economic Inequality Increase in Democratic Countries," MPRA Paper 108535, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Harashima, Taiji, 2023. "Numerical Simulation of an Endogenously Growing Economy and Its Balanced Growth Path," MPRA Paper 119391, University Library of Munich, Germany.
    2. Harashima, Taiji, 2010. "An Asymptotically Non-Scale Endogenous Growth Model," MPRA Paper 26025, University Library of Munich, Germany.
    3. Taiji HARASHIMA, 2014. "Sustainable Heterogeneity In Exogenous Growth Models. The Socially Optimal Distribution By Government’S Intervention," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 5(1), pages 73-100.
    4. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    5. Stephen Turnovsky, 2000. "Growth in an Open Economy: Some Recent Developments," Discussion Papers in Economics at the University of Washington 0015, Department of Economics at the University of Washington.
    6. Thomas I. Renström & Luca Spataro, 2015. "Population Growth and Human Capital: A Welfarist Approach," Manchester School, University of Manchester, vol. 83, pages 110-141, December.
    7. Volker Grossmann, 2008. "Entrepreneurial Innovation and Sustained Long-run Growth without Weak or Strong Scale Effects," CESifo Working Paper Series 2264, CESifo.
    8. Klaus Prettner, 2013. "Population aging and endogenous economic growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(2), pages 811-834, April.
    9. Kaixing Huang, 2016. "Demographic Transition and the Unobservable Scale Effects of Economic Growth," School of Economics and Public Policy Working Papers 2016-08, University of Adelaide, School of Economics and Public Policy.
    10. William Darity & Lewis S. Davis, 2005. "Growth, trade and uneven development," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 29(1), pages 141-170, January.
    11. Horii, R., 2000. "Emergence of New Industries and Endogenous Growth Cycles," ISER Discussion Paper 0510, Institute of Social and Economic Research, Osaka University.
    12. Ribeiro, M.J., 2000. "A Nonscale Growth Model with R&D and Human Capital Accumulation," The Warwick Economics Research Paper Series (TWERPS) 574, University of Warwick, Department of Economics.
    13. Carmelo Pierpaolo Parello, 2022. "Migration and growth in a Schumpeterian growth model with creative destruction [A model of growth through creative destruction]," Oxford Economic Papers, Oxford University Press, vol. 74(4), pages 1139-1166.
    14. MARTINS, Ana Paula, 2015. "Increasing Returns And Endogenous Growth: Market Size And Taste For Variety," Academica Science Journal, Economica Series, Dimitrie Cantemir University, Faculty of Economical Science, vol. 1(5), pages 3-33, June.
    15. Ichiroh DAITOH & Hiroaki SASAKI, 2023. "At the Right Time:Ramsey-Cass-Koopmans Model with Declining Population," Discussion papers e-23-002, Graduate School of Economics , Kyoto University.
    16. Davis, Lewis S., 2008. "Scale effects in growth: A role for institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 403-419, May.
    17. Holger Strulik, 2005. "The Role of Human Capital and Population Growth in R&D‐based Models of Economic Growth," Review of International Economics, Wiley Blackwell, vol. 13(1), pages 129-145, February.
    18. Simone Valente, 2009. "Optimal Policy and Non-Scale Growth with R&D Externalities," CER-ETH Economics working paper series 09/116, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    19. Holger Strulik, 2007. "Too Much of a Good Thing? The Quantitative Economics of R&D‐driven Growth Revisited," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 369-386, June.
    20. Harashima, Taiji, 2018. "Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State," MPRA Paper 88822, University Library of Munich, Germany.

    More about this item

    Keywords

    Decreasing rate of marginal utility; Endogenous economic growth; Risk aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:101011. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.