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Journal Articles Economic Modelling Year : 2011

Existence and stability of overconsumption equilibria

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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.

Dates and versions

halshs-00754548 , version 1 (20-11-2012)

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Grégory Ponthière. Existence and stability of overconsumption equilibria. Economic Modelling, 2011, 28 (1-2), pp.74-90. ⟨10.1016/j.econmod.2010.09.022⟩. ⟨halshs-00754548⟩
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