On Ramsey Equilibrium: Capital Ownership Pattern and Inefficiency

Abstract

We provide a sufficient condition on the production function under which eventually the most patient household owns the entire capital stock in every Ramsey Equilibrium, called the turnpike property. This generalizes the result in the literature which establishes the turnpike property using the capital income monotonicity condition. We then provide an example of a Ramsey Equilibrium in which the most patient household reaches a no capital position infinitely often. This is a strong refutation of the turnpike property on Ramsey equilibria. We also show that the constructed Ramsey equilibrium is inefficient in terms of the aggregate consumption stream that it provides.

Intertemporal equilibrium with financial asset and physical capital

“…When the production technology is stationary such that F (∞) < δ and the financial dividends are bounded from above and away from zero, we prove that every equilibrium is efficient. Our finding is different from Becker, Dubey, and Mitra (2014) where they give an example of inefficient Ramsey equilibrium in a model with only physical capital.…”

“…Becker, Dubey, and Mitra (2014) give an example of inefficient Ramsey equilibrium in a model with only physical capital. The production function in their model satisfies F (∞) = 0 and they consider full depreciation of the capital.…”

Asset bubbles and efficiency in a generalized two-sector model

“…By consequence, if the consumers' borrowing constraints are never binding, the equilibrium is e cient. Conversely, Becker et al (2014) give an example of ine cient equilibrium where borrowing constraints are binding at infinitely many dates.…”

“…Conditions (38) may fail because there is room for equilibrium bubbles in aggregate good. (39) may also fail: Becker et al (2014) gives an example violating condition (39).…”

“…We should mention here that Becker et al (2014) give an example of inecient equilibrium (an equilibrium three-period cycle) where borrowing constraints are binding at infinitely many dates.…”