Consumption Paths under Prospect Utility in an Optimal Growth Model
Journal
Journal of Economic Dynamics & Control
ISSN
0165-1889
ISSN-Digital
1879-1743
Type
journal article
Date Issued
2011-03-01
Author(s)
Abstract (De)
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.
Language
German
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam [u.a.]
Volume
35
Number
3
Start page
273
End page
281
Pages
9
Subject(s)
Eprints ID
184827