On the Theory of Productive Saving

Isaac Ehrlich () and Uri Ben-Zion

No 71, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The central thesis of this paper is that the management of portfolios incorporating a variety of investment assets does require the use of time and other scarce resources in searching for, collecting, interpreting, and applying relevant information. Accordingly, the returns on these assets would depend, in part, on managerial efforts and abilities and other related inputs. The plan of the paper is as follows. A life cycle model of consumption and productive saving without borrowing is developed in Section I. Borrowing is introduced into the model and its relationship to productive saving is explored in Section II. In Section III we attempt to elucidate the model's implications concerning capital accumulation paths and life cycle variations in resource allocations to productive activities. Implications regarding the determinants of the propensity to save are derived in Section IV and then briefly examined in light of some earlier theoretical and empirical findings.

Date: Written

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