On the Golden Rule of capital accumulation under endogenous longevity

This note derives the Golden Rule of capital accumulation in a Chakraborty-type economy, i.e. a two-period OLG economy where longevity is endogenous. It is shown that the capital per worker maximizing steady-state consumption per head is inferior to the Golden Rule capital level prevailing under exogenous longevity. We characterize also the lifetime Golden Rule, that is, the capital per worker maximizing steady-state expected lifetime consumption per head, and show that this tends to exceed the standard Golden Rule capital level.Golden Rule, longevity, OLG models

Adult longevity and economic take-off: from Malthus to Ben-Porath

We propose four arguments favoring the idea that medical effectiveness, adult longevity and height started to increase in Europe before the industrial revolution. This may have prompted households to increase their investment in human skills as a response to longer lives and initiated the transition from stagnation to growth.life expectancy, height, industrial revolution, human capital, adult mortality.

Education and Growth with Endogenous Debt Constraints

When future human capital cannot be alienated, households are allowed to borrow up to the point where it is in their own interest not to default. In such a framework, endogenous borrowing limits arise as the outcome of individual rationality constraint. In a model where education is the engine of growth, we show that endogenous borrowing constraints imply global indeterminacy. Comparing outcomes across the various equilibria we show that the relation between growth and yields is hump-shaped. Maximum growth can arise in an equilibrium with binding borrowing constraints, specially if the elasticity if human capital to education spending is large. Deepening financial markets promotes long-run growth in the case of a poverty trap, but not necessarily otherwise.Financial depth; borrowing constraints; indeterminacy; incentive compatibility

Underemployment and capital irreversivility in a unionized overlaping generations economy

In a unionized OLG model, it is shown that steady-state underutilization of labour and equipment can be due to the combination of the two following elements: (i) Irreversibility of capital, technology and skill decisions, (ii) Firm specific shocks on productivity. The presence of unions is neither sufficient nor necessary for having unemployment. The result of Devereux and Lockwood (1991) that union power affect positively the capital stock in general equilibrium does not always hold under capital irreversibility

Irreversibility, uncertainty and underemployment equilibria

In a competitive overlapping generation model, underutilization of labor and equipment can be due to the combination of irreversibility of human capital, physical capital and technology with idiosyncratic productivity shocks. Irreversibilities and uncertainty generate an inefficient allocation of resources among sectors, which takes the form of underemployment and underutilization of capacities at the aggregate level and affects the equilibrium path of capital. We provide examples in which this missallocation, called structural "mismatch," can be responsible, a.o., for an "inescapable poverty trap," or for periodic orbits generating endogenous fluctuations in underemployment

The Q theory of investment under unit root tests

We test a q investment model for Belgium using a multivariate cointegration approach. The introduccion of the degree of capacity utilization duc, in addition to investment and average q, is necessary to determine the cointegration space. This support the idea that marginal q differs from average q by a factor which is a function of duc, as suggested by Licandro(1992)

Easter Island’s Collapse : A Tale of a Population Race

The Easter Island tragedy has become an allegory for ecological catastrophe and a warning for the future. In the economic literature the collapse is usually attributed to irrational or myopic behaviors in the context of a fragile ecosystem. In this paper we propose an alternative story involving non-cooperative bargaining between clans to share the crop. Each clan’s bargaining power depends on its threat level when fighting a war. The biggest group has the highest probability of winning. A clan’s fertility is determined ex ante by each group. In the quest for greater bargaining power, each clan’s optimal size depends on that of the other clan, and a population race follows. This race may exhaust the natural resources and lead to the ultimate collapse of the society. In addition to well-known natural factors, the likelihood of a collapse turns out to be greater when the cost of war is low, the probability of succeeding in war is highly responsive to the number of fighters, and the marginal return to labor is not too low. We analyze whether these factors can account for the difference between Easter and Tikopia Islands. The paper also makes a methodological contribution in that it is the first fertility model to include strategic complementarities between groups’ fertility decisionsFertility, War, Bargaining Power, Collapse, Natural Resources

Do Brain Drain and Poverty Result from Coordination Failures?

We explore the complementarities between high-skill emigration and poverty in developing countries. We build a model endogenizing human-capital accumulation, high-skill migration and productivity. Two countries sharing the same characteristics may end up either in a "low poverty/low brain drain" path or in a "high poverty/high brain drain" path. After identifying country-specific parameters, we find that, for a majority of countries, the observed equilibrium has higher income than the other possible one. In 22 developing countries (including 20 small states with less than 2 million inhabitants), poverty and high brain drain are worsened by a coordination failure. For 25 other countries, a radical worsening of economic performances is feasible. These results are fairly robust to identification assumptions and the inclusion of a brain-gain mechanism.Public Good, Inequality Aversion, Immigration policy

Population Policy through Tradable Procreation Entitlements

Tradable permits are now widely used to control pollution. We investigate the implications of setting up such a system in another area - population control -, either domestically or at the global level. We first generalize the framework with both tradable procreation allowances and tradable procreation exemptions, in order to tackle both over- and under-population problems. The implications of procreation rights for income inequality and education are contrasted. We decompose the scheme’s impact on redistribution into three effects, one of them, the tradability effect, entails the following : with procreation exemptions or expensive enough procreation allowances redistribute resources to the rich. As far as human capital is concerned, natalist policy worsens the average education level of the next generation, while population control enhances it. If procreation rights are granted to countries in proportion to exissting fertility levels (grandfathering) instead of being allocated equally, population control can be made even more redistributive. Our exploratory analysis suggests that procreation entitlements offer a promising tool to control population without necessarily leading to problematic distributive impact, especially at the global level.Tradable permits, Population control, Pronatalist policy, Income inequality, Differential fertility, Grandfathering

The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model

The ELIE scheme of Kolm taxes labour capacities instead of labour income in order to circumvent the distortionary effect of taxation on labour supply. Still, Kolm does not study the impact of ELIE on human capital formation and investment. In this paper, we build an overlapping generations (OLG) model with heterogenous agents and endogenous growth driven by investment in human capital. We study the effect of ELIE on education investment and other aggregate economic variables. Calibrating the model to French data, we highlight a tradeoff between growth and redistribution. With a perfect credit market, ELIE is successful in reducing inequalities and poverty, but it is at the expense of lower investment in education and slower growth. In an economy with an imperfect credit market where individuals cannot borrow to educate, the tradeoff between growth and redistribution is not overturned but is less severe. However, it is possible to overturn completely that trade-off simply by changing the base of taxation for the young generation which is equivalent to subsidising education.Education, Growth, Redistribution, Kolm