EconPapers    
Economics at your fingertips  
 

Equilibrium Analysis in the Behavioral Neoclassical Growth Model

Daron Acemoglu and Martin Jensen ()

No 25363, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Rich behavioral biases, mistakes and limits on rational decision-making are often thought to make equilibrium analysis much more intractable. We show that this is not the case in the context of the neoclassical growth model (potentially incorporating incomplete markets and distortions). We break down the response of the economy to a change in the environment or policy into two parts: a direct response at a given vector of prices, and an equilibrium response that plays out as prices change. We refer to a change as a “local positive shock” if the direct response, when averaged across households, increases aggregate savings. Our main result shows that under weak regularity conditions, regardless of the details of behavioral preferences, mistakes and constraints on decision-making, the long-run equilibrium will involve a greater capital-labor ratio if and only if we start with a local positive shock. One implication of this result is that, from a qualitative point of view, behavioral biases matter for long-run equilibrium if and only if they change the direction of the direct response. We show that these aggregate predictions are coupled with individual-level “indeterminacy”: nothing much can be said about individual behavior.

JEL-codes: D50 D90 O41 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-gro
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w25363.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:25363

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w25363

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-02-03
Handle: RePEc:nbr:nberwo:25363