Economic Theory

, Volume 36, Issue 3, pp 353–377 | Cite as

Strategic saving decisions in the infinite-horizon model

Research Article
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Abstract

We study a mechanism that prevents the long-run distribution of wealth from becoming degenerate in the Ramsey–Cass–Koopmans model when households have different time-preference rates. This mechanism is based on the observation that price-taking behavior is no longer justified when all wealth is owned by a single household. Formalizing this observation, we obtain a model with a unique stationary equilibrium in which, depending on the parameter constellation, any number of households can own positive stocks of capital. We characterize this equilibrium and show for example that an increase in the dispersion of the time-preference rates across households unambiguously increases aggregate output. Whereas the main results are derived for a rather general class of production functions, we devote a separate section to the special case of the Cobb–Douglas technology for which the equilibrium conditions are particularly simple.

Keywords

Strategic saving Ramsey–Cass–Koopmans model Heterogeneous households Time-preference Wealth distribution 

JEL Classification Numbers

C73 D91 E21 O41 
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Copyright information

© Springer-Verlag 2007

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ViennaViennaAustria

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