Costly technology adoption and capital accumulation

The authors develop a model of costly technology adoption where the cost is irrecoverable and fixed. Households must decide when to switch from an existing technology to a new, more productive technology. Using a recursive approach, the authors show that there is a unique threshold level of wealth above which households will adopt the new technology and below which they will not. This threshold is independent of preference parameters and depends only on technology parameters. Prior to adoption, households invest at increasing rates, but consumption growth is constant. The authors also show that richer households adopt sooner and that income inequality increases over time. Both these results are consistent with the evidence from the Green Revolution.Technology ; Wealth

Evolution of the Distribution of Assets in the Neoclassical Growth Model

We study the evolution of the distribution of assets in a deterministic version of the Neoclassical Growth Model with log-utility, a minimum consumption requirement, and Cobb-Douglas technology. Agents are heterogeneous in their initial endowment of assets only. The dynamics of the aggregate variables behaves as in a standard representative agent model. We prove that the disparity in assets decreases monotonically in a transition to the steady state from below, as long as (i) the minimum consumption requirement is zero or negative, or (ii) the consumption requirement is positive but not too large and the initial capital stock is large enough. This result is not based on a local approximation of the model around the steady state, nor on numerical computations, as it has been the case in previous literature. We also show how a positive minimum consumption requirement or a small elasticity of substitution between capital and labor can generate non-monotonic paths for the disparity in assets along a transition. Our work extends the result in Chatterjee (1994) on the evolution of the distribution of lifetime wealth (or consumption) to the evolution of the distribution of assets (or capital).