Bambi, Mauro and Gozzi, Fausto (2020) 'Internal habits formation and optimality.', Journal of mathematical economics., 91 . pp. 165-172.
Abstract
In a very influential model with internal habits, Carroll et al., (2017, 2000), establish that an increase in economic growth may cause a positive change in savings. The optimality of this result, and of many other contributions using a similar framework, has been questioned by some authors who have observed that the parametrization used in these models always implies a utility function not jointly concave in consumption and habits. In this paper, we revisit the optimality issue and, using advanced techniques in Dynamic Programming, we answer the following long-standing open questions: (i) Is the solution found in Carroll et al., (2017, 2000) optimal? (ii) Is it also unique or do other optimal solutions exist?
| Item Type: | Article |
|---|---|
| Full text: | (AM) Accepted Manuscript Available under License - Creative Commons Attribution Non-commercial No Derivatives. Download PDF (282Kb) |
| Status: | Peer-reviewed |
| Publisher Web site: | https://doi.org/10.1016/j.jmateco.2020.09.008 |
| Publisher statement: | © 2020 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/ |
| Date accepted: | 28 September 2020 |
| Date deposited: | 13 October 2020 |
| Date of first online publication: | 16 October 2020 |
| Date first made open access: | 16 April 2022 |
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