Internal Habit Formation and Optimality
Mauro Bambi () and
No 2019_01, Working Papers from Durham University Business School
Carroll et al.  establish that in a model with internal habits, an increase in economic growth may cause a positive change in savings. The optimality of this result has been recently questioned by several contributions in the literature which have observed that the parametrization used in  implies a utility function not jointly concave in consumption and habits. In this short paper, we revisit this issue: firstly we explain that it can be solved only through advanced techniques in Dynamic Programming and then we prove, using them, how the candidate optimal control found in  is indeed the unique optimal control
Keywords: Endogenous Growth; Habit Formation, Sufficient Conditions of Optimality, Dynamic Programming, Viscosity Solution. (search for similar items in EconPapers)
JEL-codes: C61 D91 E21 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-gro and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:dur:durham:2019_01
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