Should the Neoclassical growth model include the saving flow in the Utility function?

Atef Khelifi ()

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Abstract: By assuming that the individual derives utility from consumption only, the resulting optimal decision to save in the Ramsey model depends on the rate of return, given a certain time preference. If therefore the production function is such that this rate of return remains relatively low, the individual reacts unconsciously by refusing to save despite the capital depreciates and the household grows. We argue that it is conceptually necessary in that framework to assume a direct preference for saving (or for thriftiness) in the utility function, not only to make the individual behave as a real human being who cares about the survival of the household, but also to account reasonably for any other motives to save or accumulate than the rate of return. We show it generalizes the model in a way to recover static properties of the exogenous Solow version and to extend results of capitalist spirit models following Zou (1994).

Keywords: bequest; status; thriftiness; capitalist spirit; ramsey model (search for similar items in EconPapers)
Date: 2016-12-01
New Economics Papers: this item is included in nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-01406690
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Published in International Journal of Economics and Finance, 2016, 8 (12), ⟨10.5539/ijef.v8n12p224⟩

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Working Paper: Should the Neoclassical growth model include the saving flow in the Utility function? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01406690

DOI: 10.5539/ijef.v8n12p224

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