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Ronald Wendner
 
''Capital Accumulation and Habit Formation''
( 2002, Vol. 4 No.7 )
 
 
This paper investigates the impact of habits on savings and steady state capital intensity. Within the framework of an OLG economy with productive capital, a rise in the strength of habits increases savings if the steady state is asymptotically stable. Consequently, the steady state capital intensity as implied by an OLG model with habits is higher compared to the case with time-separable utility. If, however the initial steady state is unstable, a rise in the strength of habits lowers savings.
 
 
Keywords:
JEL: D9 - Intertemporal Choice and Growth: General
D1 - Household Behavior: General
 
Manuscript Received : Jan 17 2002 Manuscript Accepted : Mar 13 2002

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