Bambi, Mauro and Gozzi, Fausto (2019) 'Internal habit formation and optimality.', Working Paper. Durham University Business School, Durham.
Carroll et al.  establish that in a model with internal habits, an increase in economic growth may cause a positive change in savings. The optimality of this result has been recently questioned by several contributions in the literature which have observed that the parametrization used in  implies a utility function not jointly concave in consumption and habits. In this short paper, we revisit this issue: firstly we explain that it can be solved only through advanced techniques in Dynamic Programming and then we prove, using them, how the candidate optimal control found in  is indeed the unique optimal control.
|Item Type:||Monograph (Working Paper)|
|Full text:||(VoR) Version of Record|
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|Publisher Web site:||https://www.dur.ac.uk/business/research/economics/working-papers/|
|Date accepted:||No date available|
|Date deposited:||23 May 2019|
|Date of first online publication:||2019|
|Date first made open access:||No date available|
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