Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171544
Authors: 
Valente, Simone
Year of Publication: 
2009
Series/Report no.: 
Economics Working Paper Series 09/101
Abstract: 
We analyze the consequences of habit formation for income levels and long-term growth in an overlapping generations model with dynastic altruism and resource dependence. If the strength of habits is below a critical level, the competitive economy displays an altruistic (Ramsey-like) equilibrium where consumption sustainability obeys the Stiglitz condition, and habits yield permanent effects on output levels due to transitional effects on growth rates, capital profitability and speed of resource depletion. If the strength of habits is above the critical threshold, the economy achieves a selfish (Diamond-like) equilibrium in which habits increase growth rates and resource depletion even in the long run, sustainability conditions are less restrictive, consumption and output grow faster than in Ramsey equilibria, but welfare is much lower. Results hinge on resource dependence, as different depletion rates modify the intergenerational distribution of wealth and thereby the growth rate attained in either equilibrium.
Subjects: 
Dynastic Altruism
Overlapping Generations
Capital-Resource Model
Habit Formation
JEL: 
Q30
D91
E21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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