Optimal growth and recursive utility: Phase diagram analysis

  • F. R. Chang
Contributed Papers

Abstract

The dynamics of the one-sector optimal growth model with recursive utility is analyzed through the use of a phase diagram. The steady state uniquely exists and is a saddle point. An increase in recursivity lowers both the steady-state capital and steady-state consumption. The model differs from the constant discount rate model in that a reduction in the population growth rate or a Hicks-neutral technical progress increases the steady-state consumption but not necessarily the steady-state capital.

Key Words

Optimal growth recursive utility phase diagram Euler equation saddle point 

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Copyright information

© Plenum Publishing Corporation 1994

Authors and Affiliations

  • F. R. Chang
    • 1
  1. 1.Indiana UniversityBloomington

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