Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73129
Authors: 
Grossmann, Volker
Steger, Thomas M.
Trimborn, Timo
Year of Publication: 
2011
Series/Report no.: 
Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät, Universität Hannover 482
Abstract: 
This paper shows that dynamic inefficiency can occur in dynamic general equilibrium models with fully optimizing, infinitely-lived households even in a situation with underinvestment. We identify necessary conditions for such a pos- sibility and illustrate it in a standard R\&D-based growth model. Calibrating the model to the US, we show that a moderate increase in the R\&D subsidy indeed leads to an intertemporal free lunch (i.e., an increase in per capita consumption at all times). Hence, Milton Friedman’s conjecture There ain’t no such thing as a free lunch (TANSTAAFL) may not apply.
Subjects: 
Intertemporal free lunch
Dynamic inefficiency
R\&D-based growth
Transitional dynamics.
JEL: 
E20
H20
O41
Document Type: 
Working Paper

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