On the Invariance of the Rate of Return to Convex Adjustment Costs

Andrew Abel

Review of Economic Dynamics, 2002, vol. 5, issue 3, 586-601

Abstract: The Modified Golden Rule, which relates the rate of return on capital and the growth rate of the capital stock along long-run growth paths that maximize the utility of a representative infinitively-lived consumer, is invariant to the introduction of convex capital adjustment costs. Therefore, along balanced growth paths in neoclassical optimal growth models with an exogenous long-run growth rate of capital, the rate of return is invariant to the introduction of convex adjustment costs, though the capital-labor ratio is reduced along such paths. In AK models, convex adjustment costs reduce the growth rate and rate of return of capital. (Copyright: Elsevier)

JEL-codes: E2 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (10)

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Working Paper: On the Invariance of the Rate of Return to Convex Adjustment Costs (2001)
Working Paper: On the Invariance of the Rate of Return to Convex Adjustment Costs (2001)
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DOI: 10.1006/redy.2001.0158

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