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Numerical Simulation of Reaching a Steady State: Effects of Economic Rents on Development of Economic Inequality

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  • Harashima, Taiji

Abstract

It is not easy to numerically simulate the path to a steady state because there is no closed form solution in dynamic economic growth models in which households behave generating rational expectations. In contrast, it is easy if households are supposed to behave under the MDC (maximum degree of comfortability)-based procedure to reach a steady state where MDC indicates the state at which a household feels most comfortable with its combination of incomes and assets. In this paper, I simulate the development of economic inequality when households obtain economic rents heterogeneously and behave under the MDC-based procedure. The results of simulations indicate that if a government does not intervene, the level of economic inequality continues to increase, but if it intervenes appropriately, households can reach a stabilized (steady) state that is not approximately but “purely” optimal in the sense that they can feel they are at MDC.

Suggested Citation

  • Harashima, Taiji, 2023. "Numerical Simulation of Reaching a Steady State: Effects of Economic Rents on Development of Economic Inequality," MPRA Paper 117137, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117137
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    References listed on IDEAS

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    1. 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.
    2. Harashima, Taiji, 2016. "Ranking Value and Preference: A Model of Superstardom," MPRA Paper 74626, University Library of Munich, Germany.
    3. Harashima, Taiji, 2010. "Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population," MPRA Paper 22521, University Library of Munich, Germany.
    4. 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.
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    Cited by:

    1. Harashima, Taiji, 2023. "Numerical Simulations of How Economic Inequality Increases in Democratic Countries," MPRA Paper 118710, University Library of Munich, Germany.

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    More about this item

    Keywords

    Balanced growth path; Economic rent; Economic inequality; Government transfer; Heterogeneity; Simulation; Steady state;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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