The Macroeconomics of TANSTAAFL

Volker Grossmann, Thomas Steger and Timo Trimborn

No 3651, CESifo Working Paper Series from CESifo

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 possibility 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)
Date: 2011
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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)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3651

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