A Two-sector Model of Endogenous Growth with Leisure Externalities

Costas Azariadis, Been-Lon Chen, Chia-Hui Lu and Yin-Chi Wang

No 12-A014, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: This paper considers leisure externalities in a Lucas (1988) type model in which physical and human capital are necessary inputs in both sectors. In spite of a non-concave utility, the balanced growth path is always unique in our model which guarantees global stability for comparative-static exercises. We analyze and quantify the effects of preferences toward leisure on labor supply and welfare. We find that small differences in preferences toward leisure can explain a substantial fraction of differences in hours worked between Americans and Europeans. Quantitative results indicate that these differences also explain why Europeans grow less and consume less, but still prefer their lifestyle to that of the United States.

Keywords: leisure externalities; two-sector model; labor supply; economic growth (search for similar items in EconPapers)
JEL-codes: E24 O41 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2012-12
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: A two-sector model of endogenous growth with leisure externalities (2013)
Working Paper: A two-sector model of endogenous growth with leisure externalities (2012)
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