Growth with many agents and wages paid ex ante

Kirill Borissov, Ram Sewak Dubey

Research output: Contribution to journalArticle

Abstract

In this paper, we consider a one-sector model of economic growth with several infinitely-lived heterogeneous agents, who are endowed with diverse discount factors as well as preferences over consumption. In line with the classical Ramsey model, agents are not allowed to borrow against future income. Unlike the traditional assumption of ex post wage payment, wages are paid ex ante in our model. We first explain the difference between the assumptions of wages being paid ex ante and wages being paid ex post in the framework of a simple illustrative two-class model. Our main result shows that in contrast to the many-agent Ramsey model with ex post wage payment, the capital stock sequence converges to the steady state stock irrespective of production technology employed by the firms. Further, all impatient agents own zero capital stock, whereas the most patient agent owns the entire capital stock from some time onward. Thus, we have shown that a slight modification in the timing of wage payment in growth models can lead to significant changes in the stability properties of equilibrium dynamics.

Original languageEnglish
JournalEconomic Modelling
DOIs
StateAccepted/In press - 1 Jan 2019

Keywords

  • Convergence
  • Economic growth
  • Ex ante wage
  • Heterogeneous agent
  • Stability
  • Turnpike property.

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