On sustained economic growth with wealth effects

Santanu Roy

International Journal of Economic Theory, 2010, vol. 6, issue 1, 29-45

Abstract: In a discounted one‐sector convex model of optimal economic growth where utility may depend on both consumption and capital stock, I derive necessary and sufficient conditions for sustained growth (unbounded expansion of capital and consumption). Conditions for bounded growth and extinction are also outlined. Optimal paths may be non‐monotone. Sustained growth may occur even though the asymptotic marginal productivity is less than the discount rate and may require the initial capital stock to be above a critical level. The behavior of the marginal rate of substitution between consumption and capital plays a crucial role in the conditions.

Date: 2010
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https://doi.org/10.1111/j.1742-7363.2009.00120.x

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