Consumption paths under prospect utility in an optimal growth model

Arbeitspapier

This paper studies the Cass-Koopmans-Ramsey model of optimal economic growth in the presence of loss aversion and habit formation. The representative agent's preferences for consumption can be gradually varied between the standard constant intertemporal elasticity of substitution (CIES) case and Kahneman and Tversky's prospect utility. We find that the transitional dynamics of optimal consumption paths differ distinctly from the standard model, in particular consumption smoothing is more pronounced. We also show that prospect utility can cause the economy to remain in a steady state with low consumption and low capital.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Discussion Papers ; No. 10-10

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth ; One, Two, and Multisector Growth Models
• Thema: Ramsey growth model ; prospect theory ; loss aversion ; optimal consumption ; Optimales Wachstum ; Prospect Theory ; Risikoaversion ; Erwartungsnutzen ; Optimaler Konsum ; Substitutionselastizität ; Steady-State-Wachstum ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Foellmi, Reto ; Rosenblatt-Wisch, Rina ; Schenk-Hoppé, Klaus Reiner
• Ereignis: Veröffentlichung
• (wer): University of Bern, Department of Economics
• (wo): Bern
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/76736
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ