The Macroeconomics of TANSTAAFL

Volker Grossmann, Thomas Steger and Timo Trimborn

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: This paper shows that dynamic inefficiency can occur in dynamic general equilibrium models with fully optimizing, infinitely-lived households even in a situation with underinvestment. We identify necessary conditions for such a pos- sibility and illustrate it in a standard R\&D-based growth model. Calibrating the model to the US, we show that a moderate increase in the R\&D subsidy indeed leads to an intertemporal free lunch (i.e., an increase in per capita consumption at all times). Hence, Milton Friedman’s conjecture There ain’t no such thing as a free lunch (TANSTAAFL) may not apply.

Keywords: Intertemporal free lunch; Dynamic inefficiency; R\&D-based growth; Transitional dynamics. (search for similar items in EconPapers)
JEL-codes: E20 H20 O41 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2011-11
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-482.pdf (application/pdf)

Related works:
Journal Article: The macroeconomics of TANSTAAFL (2013)
Working Paper: The Macroeconomics of TANSTAAFL (2012)
Working Paper: The Macroeconomics of TANSTAAFL (2011)
Working Paper: The macroeconomics of TANSTAAFL (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-482

Access Statistics for this paper

More papers in Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät Contact information at EDIRC.
Bibliographic data for series maintained by Heidrich, Christian ().