Abstract
Abstract Background: Although there are many formal models about interactions among habit formation, preference change and the economic growth, only a few formal models examine implications of habit formation and preference change for the economic growth with resources. Objectives: This paper builds an economic growth model with endogenous physical capital, renewable resources, habit formation and preference. Methods: Although it is influenced by the Ramsey growth theory with time preference and habit formation, the paper applies a new approach to the household behaviour. Results: We plot the motion of the economy and conduct a comparative dynamic analysis with regard to certain parameters to obtain insights into interactions between the preference and the economic structural changes. Conclusions: We have shown that habit formation and preference change have significant effects on the economic grow and resources utilization both with regard to the transitional paths and the long-run equilibrium.
Highlights
The main purpose of this research is to deal with dynamic interdependence among economic growth, resource change, habit formation and preference shift
This study is to examine dynamic interactions among economic growth, habit formation and preference change, renewable resources, basing on the Ramsey-type neoclassical growth theory of endogenous capital and renewable resource by, for instance, Eliasson et al (2004) and Alvarez-Cuadrado et al (2011)
This paper introduced habit formation and preference changes into a neoclassical growth model with renewable resources
Summary
The main purpose of this research is to deal with dynamic interdependence among economic growth, resource change, habit formation and preference shift. We build the economic growth model with interactions among wealth accumulation, renewable resource dynamics, habit formation and preference change. The rate of time preference is assumed to rise with real wealth Influenced by these studies and Zhang (2012), we consider the following dynamics of the propensity to save 0 t w w t k k t , (14). We prove that the motion of the dynamic model with habit formation ad preference change is given by 4 autonomous differential equations with 4 variables, z t ,. The consumption level and habit stock of commodity consumption are increased in association with the rise in the relative propensity to consume. The impact of the change is to increase the propensity to consume the resource This increase enhances both current level of resource and the habit stock of resource consumption.
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