On Ramsey Equilibrium: Capital Ownership Pattern and Inefficiency
Robert A. Becker
Indiana University Bloomington - Department of Economics
Ram Sewak Dubey
Montclair State University - The Feliciano School of Business, Department of Economics, Finance and Real Estate
Cornell University - Department of Economics
October 27, 2012
Economic Theory, Forthcoming
Center for Applied Economics and Policy Research (CAEPR) Working Paper No. 2012-007
We provide a sufficient condition on the production function under which eventually the most patient household owns the entire capital stock in every Ramsey Equilibrium, called the turnpike property. This generalizes the result in the literature which establishes the turnpike property using the capital income monotonicity condition. We then provide an example of a Ramsey Equilibrium in which the most patient household reaches a no capital position infinitely often. This is a strong refutation of the turnpike property on Ramsey equilibria. We also show that the constructed Ramsey equilibrium is inefficient in terms of the aggregate consumption stream that it provides.
Number of Pages in PDF File: 30
Keywords: Cass Criteria, Efficiency, Maximal Income Monotonicity, Period Three Ramsey Equilibrium Cycle, Weak Turnpike Property, Approximate CES Function
JEL Classification: C61, D61, D90, O41
Date posted: November 20, 2012 ; Last revised: July 29, 2013
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