Existence and stability of overconsumption equilibria |
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Authors: | Gregory Ponthiere |
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Affiliation: | 1. International Rice Research Institute, Metro Manila, Philippines;2. Department of Agricultural Economics, Purdue University, West Lafayette, IN, USA;3. Department of Spatial Economics, VU University Amsterdam, The Netherlands;4. Tinbergen Institute, Amsterdam, The Netherlands;5. Department of Agricultural and Resource Economics, University of Tennessee Institute of Agriculture, Knoxville, TN, USA |
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Abstract: | Growth models with endogenous mortality assume generally that life expectancy is increasing with output per capita and, thus, with individual consumption, whatever its level is. However, empirical evidence supports a U-shaped relationship between consumption and mortality, implying that the monotonicity of that relation is local but not global. This paper develops a two-period OLG model where life expectancy is a non-monotone function of consumption, and where agents form myopic anticipations about life expectancy. The existence, uniqueness and stability of steady-state equilibria are studied. It is shown that overconsumption equilibria — i.e. equilibria at which consumption exceeds the level maximizing life expectancy — exist in highly productive economies with a low impatience. We identify also conditions under which there exist long-run cycles in output and longevity around overconsumption equilibria. |
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