On Ramsey Equilibrium: Capital Ownership Pattern and Inefficiency
Center for Applied Economics and Policy Research (CAEPR) Working Paper No. 2012-007
30 Pages Posted: 20 Nov 2012 Last revised: 29 Jul 2013
Date Written: October 27, 2012
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.
Keywords: Cass Criteria, Efficiency, Maximal Income Monotonicity, Period Three Ramsey Equilibrium Cycle, Weak Turnpike Property, Approximate CES Function
JEL Classification: C61, D61, D90, O41
Suggested Citation: Suggested Citation