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The Macroeconomics of TANSTAAFL

Volker Grossmann (), Thomas Steger () and Timo Trimborn ()

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

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 pos- sibility 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)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2011-11
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http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-482.pdf (application/pdf)

Related works:
Journal Article: The macroeconomics of TANSTAAFL (2013) Downloads
Working Paper: The Macroeconomics of TANSTAAFL (2012) Downloads
Working Paper: The Macroeconomics of TANSTAAFL (2011) Downloads
Working Paper: The macroeconomics of TANSTAAFL (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-482

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