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Internal habits formation and optimality
Journal of Mathematical Economics ( IF 1.0 ) Pub Date : 2020-12-01 , DOI: 10.1016/j.jmateco.2020.09.008 Mauro Bambi , Fausto Gozzi
Journal of Mathematical Economics ( IF 1.0 ) Pub Date : 2020-12-01 , DOI: 10.1016/j.jmateco.2020.09.008 Mauro Bambi , Fausto Gozzi
Abstract In a very influential model with internal habits, Carroll et al., (2017, 2000), establish that an increase in economic growth may cause a positive change in savings. The optimality of this result, and of many other contributions using a similar framework, has been questioned by some authors who have observed that the parametrization used in these models always implies a utility function not jointly concave in consumption and habits. In this paper, we revisit the optimality issue and, using advanced techniques in Dynamic Programming, we answer the following long-standing open questions: (i) Is the solution found in Carroll et al., (2017, 2000) optimal? (ii) Is it also unique or do other optimal solutions exist?
更新日期：2020-12-01
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