Optimal Growth with Heterogeneous Agents and the Twisted Turnpike: An Example
Center for Applied Economics and Policy Research Working Paper No. 2011-008
43 Pages Posted: 24 Sep 2011
Date Written: September 22, 2011
The dynamics of a welfare maximizing heterogeneous agent, one sector optimal Ramsey model is analyzed assuming two agents, each with a distinct discount factor and log utility. Production is Cobb-Douglas. Explicit time-varying policy functions are derived, one for each period. A Twisted Turnpike Property and eventual monotone dynamics are demonstrated to govern the evolution of the economy's aggregate capital stock.
Keywords: Optimal Growth, Pareto Optimality, Symmetry, Twisted Turnpike Theorem, Monotone Dynamics
JEL Classification: C61, D51, D90, O41
Suggested Citation: Suggested Citation