Robust Comparative Statics in Large Dynamic Economies

We consider infinite horizon economies populated by a continuum of agents who are subject to idiosyncratic shocks. This framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by Bewley, Aiyagari, and Huggett, and models of entry, exit and industry dynamics in the spirit of Hopenhayn's work as special cases. Robust and easy-to-apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the Markov processes governing the law of motion of the idiosyncratic shocks. These results complement the existing literature which uses simulations and numerical analysis to study this class of models and are illustrated using a number of examples

Life Cycle Savings, Bequest, and the Diminishing Impact of Scale on Growth

There appears to be ample evidence that the size of population acted as a stimulus to growth in historical times; scale mattered. In the post World War II era, however, there is little evidence of such scale effects on growth. Where did the scale effect go? The present paper shows that the savings motive critically affects the size and sign of scale effects in standard endogenous growth models. If the bequest motive dominates, the scale effect is positive. If the life cycle motive dominates, the scale effect is ambiguous and may be negative. A declining importance of bequest in capital accumulation could therefore be one reason why scale seems to matter less today than in historical times.overlapping generations; endogenous growth; scale effects

Aggregate comparative statics

February 22, 200

A representation theorem for guilt aversion

Guilt aversion has been shown to play an important role in economic decision-making. In this paper, we take an axiomatic approach to guilt by deducing a utility representation from a list of easily interpretable assumptions on an agent's preferences. It turns out that our logarithmic representation can mitigate the problem of multiplicity of equilibria to which psychological games are prone. We apply the model in three well-known games and show that its predictions are consistent with experimental observations

On Unbounded Growth with Heterogenous Consumers

This paper studies unbounded growth with infinite-horizon consumers whose discount factors and instant utility functions are not assumed to be identical. The Negishi-type planner becomes non-homogenous and as a consequence, different consumer types may end up holding all wealth in the far future for different initial distributions of income. The main technical contribution is a turnpike theorem which generalizes the global stability results of Kaganovich (1998) and Jensen (2003)