Advertisement

Portuguese Economic Journal

, Volume 13, Issue 3, pp 167–193 | Cite as

Heterogeneous consumption in OLG model with horizontal innovations

  • Anton O. Belyakov
  • Josef L. Haunschmied
  • Vladimir M. Veliov
Original Article

Abstract

The paper develops a general equilibrium endogenous growth model involving heterogeneous consumption by an age-structured population with uncertain but limited life span and balanced life-time budget without bequests. The heterogeneity is introduced via weights which the individuals attribute in their utility function to consumption of different goods depending on the vintage of the good. The goods are produced by monopolistically competitive firms and the variety of available goods/technologies is determined endogenously through R&D investments. A competitive bank sector provides financial resources for investments, secured by agents’ savings and future firms profits. The general equilibrium is characterized by a system of functional equations and is analytically or numerically determined for several particular weight functions. It is shown that the investments by agents alone may be insufficient to sustain growth, while additional investments provided by the bank sector may lead to growth. The resulting imbalance between agents’ assets and the total value of firms can grow unboundedly in the case of homogeneous consumption. The results exhibit the qualitative difference between the dynamics of the model with heterogeneous versus homogeneous consumption. In particular heterogeneous consumption (when old goods are discounted) reduces the additional investments by the financial sector so that the values of firms become balanced by the assets of agents in the long run.

Keywords

Horizontal innovation Endogenous growth Heterogeneous consumption 

JEL Classification

O3 O4 

References

  1. Belyakov AO, Haunschmied JL, Veliov VM (2012) General equilibriummodel with horizontal innovations and heterogeneous products (Research Report No. 2012-01). Operations Research and Control Systems, Institute of Mathematical Methods in Economics, Vienna University of Technology. Retrieved from http://orcos.tuwien.ac.at/fileadmin/t/orcos/ResearchReports/2012-01Bely-VV-HS.pdf
  2. Belyakov AO, Tsachev T, Veliov VM (2011) Optimal control of heterogeneous systems with endogenous domain of heterogeneity. Appl Math Optim 64(2):287-311CrossRefGoogle Scholar
  3. Blanchard O (1985) Debt, deficits and finate horizons. J Polit Econ 93:223-247CrossRefGoogle Scholar
  4. Boucekkine R, de la Croix D, Licandro O (2002) Vintage human capital, demographic trends, and endogenous growth. J Econ Theory 104(2):340–375CrossRefGoogle Scholar
  5. Cass D, Yaari ME (1967) Individual saving, aggregate capital accumulation, and efficient growth. In: Shell K (ed) Essays on the theory of optimal economic growth. pp 233–268. MIT, CambridgeGoogle Scholar
  6. d’Albis H, Augeraud-Véron E (2011) Continuous-time overlapping generations models. In: Boucekkine R, Hritonenko N, Yatsenko Y (eds) Optimal control of age-structured population in economy, demography, and the environment. routledge explorations in environmental economics. pp 45-69. Taylor and FrancisGoogle Scholar
  7. Diamond PA (1965) National debt in a neoclassical growth model. Am Econ Rev 55:1126-1150Google Scholar
  8. Dinopoulos E, Thompson P (1998) Schumpeterian growth without scale effects. J Econ Growth 3(4): 313-335CrossRefGoogle Scholar
  9. Dixit AK, Stiglitz JE (1977) Monopolistic competition and optimum product diversity. Am Econ Rev 67:297-308Google Scholar
  10. Gale D (1973) Pure exchange equilibrium of dynamic economic models. J Econ Theory 6:12-36CrossRefGoogle Scholar
  11. Grossman MG, Helpman E (1989) Product development and international trade. J Polit Econ 97(6):1261-1283CrossRefGoogle Scholar
  12. Grossman MG, Helpman E (1991) Innovation and growth in the global economy. MIT PressGoogle Scholar
  13. Jones CI (1995a) R&d-based models of economic growth. J Polit Econ 103:759-784CrossRefGoogle Scholar
  14. Jones CI (1995b) Time-series tests of endogenous growth models. Q J Econ 110:495-525CrossRefGoogle Scholar
  15. Jones CI (1999) Growth: With or without scale effects? Am Econ Rev 89:139-144CrossRefGoogle Scholar
  16. Judd KL (1985) On the performance of patents. Econometrica 53:567-585CrossRefGoogle Scholar
  17. Prettner K (2013) Population aging and endogenous economic growth. J Popul Econ 26(2):811–834. doi: 10.1007/s00148-012-0441-9 CrossRefGoogle Scholar
  18. Romer PM (1990) Endogenous technological change. J Polit Econ 98:71-102CrossRefGoogle Scholar
  19. Samuelson PA (1958) An exact consumption-loan model of interest with or without the social contrivance of money. J Polit Econ 66:467-482CrossRefGoogle Scholar
  20. Sorger G (2011) Horizontal innovations with endogenous quality choice. Economica 78(312):697-722. doi: 10.1111/j.1468-0335.2010.00852.x CrossRefGoogle Scholar
  21. Yaari ME (1965) Uncertain lifetime, life insurance and the theory of the consumer. Rev Econ Stud 70: 83-101Google Scholar

Copyright information

© ISEG 2014

Authors and Affiliations

  • Anton O. Belyakov
    • 1
  • Josef L. Haunschmied
    • 1
  • Vladimir M. Veliov
    • 1
  1. 1.Institute of Mathematical Methods in EconomicsVienna University of TechnologyViennaAustria

Personalised recommendations