Optimal Growth with Heterogeneous Agents and the Twisted Turnpike: An Example

Abstract

The dynamics of a welfare maximizing, heterogeneous agent, one sector optimal Ramsey model is analyzed assuming two agents, each with a distinct discount factor and log utility. Production is Cobb-Douglas. Explicit time varying policy functions are derived, one for each period. A Twisted Turnpike Property and eventually monotone dynamics are demonstrated to govern the evolution of the economy’s aggregate capital stock.