Capital accumulation when consumers are tempted by others’ consumption experience

2019 ◽  
Vol 72 (3) ◽  
pp. 804-828
Author(s):  
Jaime Alonso-Carrera ◽  
Stéphane Bouché

Abstract We analyse how the influence of peer effects on self-control affects capital accumulation. We consider an overlapping generations model where individuals are tempted to take the economy-wide average consumption as an aspiration. Consumers exhibit a preference for self-control. They face a self-control problem, and observing each other’s consumption determines the individual’s capacity to deal with this problem. We show that temptation and self-control may either increase or decrease the accumulation of capital. The crucial point would be whether or not consumers take the consumption of the individuals belonging to the other living generations as a reference in forming their aspirations. This point also crucially determines the stability properties of the equilibrium paths.

2012 ◽  
Vol 4 (6) ◽  
pp. 319-330
Author(s):  
Flaubert Mbiekop

It is now conventional wisdom that institutions shape household fertility choices, especially in developing countries. However, deeper insights into the mechanisms at play are still needed. This paper develops a game-theoretical framework with a simple overlapping-generations model to show how a typical household may come to prefer bearing and raising numerous children as a savings scheme for retirement and not rely on conventional outlets for saving when facing weak institutions. On the one hand weak institutions increase the risk that individuals may lose their savings if relying on conventional outlets. On the other hand, childbearing as an investment/savings scheme carries with it the risk that disguised or complete unemployment may prevent grown children from providing the expected old-age financial support. The typical household thus trades off between both types of risks, yet with more control in the latter case, as the likelihood of unemployment can be reduced by carefully selecting a child quality-quantity strategy. Mild conditions are sufficient to show that sound institutions induce less fertility and foster private saving and oldage consumption. A simple voting experiment unveils a tricky socio- economic dynamics whereby wealthier households may have stakes supporting weak institutions.


2011 ◽  
Vol 16 (5) ◽  
pp. 661-685 ◽  
Author(s):  
Xavier Pautrel

When finite lifetime is introduced in a Lucas [Journal of Monetary Economics 22 (1988), 3–42] growth model where the source of pollution is physical capital, the environmental policy may enhance the growth rate of a market economy, whereas pollution does not influence educational activities, labor supply is not elastic, and human capital does not enter the utility function. The result arises from the generational turnover effect due to finite lifetime and it remains valid under conditions when the education sector uses final output as well as time to accumulate human capital. This article also demonstrates that ageing reduces the positive influence of environmental policy when growth is driven by human capital accumulation à la Lucas in the overlapping-generations model of Yaari [Review of Economic Studies 32 (1965), 137–150] and Blanchard [Journal of Political Economy 93 (1985), 223–247].


2021 ◽  
Vol 67 (1) ◽  
pp. 1-12
Author(s):  
Fatma Safi

Abstract The present paper presents a standard overlapping generations model with external habits formation and environmental quality in the utility function. Our main objective is to study the impact of external habits on capital accumulation and environmental quality on the intertemporal competitive equilibrium. We notice that striving for status leads to environment worsening and capital increasing when the cohort size is large.


1860 ◽  
Vol 7 (35) ◽  
pp. 1-23 ◽  

The new position in which you have done me the honour this day to place me, entails upon me the duty of passing in review the varied interests and difficult problems of social and medical science, which are necessarily involved in promoting that which is the primary object of this Association, the welfare of the insane. The welfare of the insane! What a world of interests does not this small phrase include; what questions of individual happiness or misery; what questions of the prosperity or ruin of families; what questions of morality and law, of religion and politics; in fine, does it not ‘inferentially include the welfare of the human race. From time when Nebuchadnezzar ate grass, the happiness of the human race has often been at the mercy of the not metaphorical insanity of its rulers; and how often does not madness in lower stations imperil all that is precious. A mad orator on the floor of the house, or in the pulpit, may do comparatively little mischief, for opinion breaks no bones; but madness in a man of action, in an admiral for instance who commits suicide in the heat of an engagement, or an engineer in charge of a railway train; to what fearful disasters may it not give rise? In the world there is nothing great but man, in man there is nothing great but mind, says Hamilton. How vast, how wonderful a subject of study, therefore, is mind, whether in its integrity, or its decadence and ruin, in its health or its disease! Mental physicians, are we pledged to devote ourselves to the contemplation, and, as far as may be, to the full appreciation of this great subject, that we may oppose decay, and relieve disease ? Would it were possible to prevent it! Mental hygiene is, indeed, a subject vast as that of human progress. The highest and lowest stages of human development, those of the savage and the practical philosopher, are, perhaps, almost equally free from this direst scourge of human pride; the one with passions undeveloped, the other with passions under subjection. But the line of progress from one to the other of these termini, is strewn with those who have fallen in their weakness to linger and to die. Madness, the Nemesis of that ill-directed, ill-regulated development that we call civilization, what if it were to increase until the tendencies to mental disease overweighed in the community the conservative powers of health! There have been communities and times in which physical disease has threatened, or actually put an end to a race of men; and there have been communities and times in which folly and passion and delusion have been so widely endemic, that the fabric of society has been torn down, and even its very foundations shaken; and were it not for the resiliency of nature, the benign law of adjustment, by which deviations from law are a check upon further deviation, it is possible to conceive that the tendencies to mental infirmity and disease should increase; that passionate selfishness and insane folly should have continually augmenting power to reproduce themselves until acquired, and hereditary tendencies to madness should overbalance the forces of self-control and sanity, so that an observer, neither cynical nor metaphorical, might justly exclaim upon the “mad world,” and races, like families, become impotent for all except mischief and disaster, until time, the great physician, brought the only cure in extinction. Such speculations as these are not without their use, impossible as their realization may appear; they at least serve to make us value rightly the blessings we enjoy, blessings which from their commonness we are too apt to over look. We have no earthquakes in this country, and we calculate upon the stability of our buildings; we have no dead calms, and that world without motion, whose stagnant putridity has been painted by Byron and Coleridge, is to us a dread but impossible imagining. But the stability of our dwelling-place, and the restless agitation of the elements, although among those simple elementary conditions upon which our being depends, are also conditions which it is most easy to conceive might have been otherwise.


2021 ◽  
Vol 66 (231) ◽  
pp. 59-97
Author(s):  
Houyem Chekki Cherni

This paper presents a prospective analysis to guide effective pension reform. Using an overlapping generations model with differing returns on free savings and compulsory returns on funded pensions, we put into perspective the results largely supported in the economic literature that assume that replacing a pay-as-you-go pension scheme by funded plans boosts economic growth. We show that this reform is not necessarily synonymous with economic growth due to a crowding-out effect. Our contribution is not limited to theoretical results: we also assess the impacts empirically. Thus, we extend the theoretical model to take into account several periods and 55 generations. Simulation results, using a dynamic overlapping generations computable general equilibrium model calibrated for the Tunisian case, indicate that whether pension reform promotes capital accumulation and economic growth depends on the rate of return on funded pension savings relative to free savings.


2016 ◽  
Vol 16 (4) ◽  
pp. 554-583
Author(s):  
BEN J. HEIJDRA ◽  
JOCHEN O. MIERAU ◽  
TIMO TRIMBORN

AbstractWe study the short-, medium-, and long-run implications of stimulating annuity markets in a dynamic general-equilibrium overlapping-generations model. We find that beneficial partial-equilibrium effects of stimulating annuity markets are counteracted by negative general-equilibrium repercussions. Balancing the positive partial-equilibrium and negative general-equilibrium forces we show that there exists an intermediate level of annuitization such that the lifetime utility of steady-state agents is maximized. Studying the transition to this optimal degree of annuitization shows that currently middle-aged individuals stand to gain most from the stimulation of annuity markets. Complementing our main analysis, we highlight the centrality of the interplay between human-capital accumulation and annuity market policy.


2021 ◽  
Vol 6 (1) ◽  
pp. 42-50
Author(s):  
Fatma Safi

Outward habit formation affects consumption decisions. Since consumption displays a negative environmental externality, outward habits has as well an (adverse) effect on the environment. This research paper centers around the theoretical linkage between the combination of both externalities (environmental deterioration and outward habits). The objective of this study is to examine the impacts of outward habits on the state of the environment in the context of an overlapping generations economy. In our study, environmental quality is a public good negatively affected by consumption activity and positively affected by maintenance investment. With outward habit formation, the build-up level of average past consumption in the economy at large influences the current utility of an individual consumer. Thus, individuals draw utility not only from their own level of current consumption, but also from its level relative to the average consumption in the economy. How does outward habit influence the state of the environment? We analyze this question using an overlapping generations model with outward habit and environmental quality in the utility function. In steady state equilibrium allocation, we show that whether outward habits are destructive to the environment depends on the degrees of outward habit formation and the size of the economy.


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