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Equilibrium Analysis in Behavioral One-Sector Growth Models





Rich behavioral biases, mistakes and limits on rational decision-making are often thought to make equilibrium analysis much more intractable. We establish that this is not the case in the context of one-sector growth models such as Ramsey-Cass-Koopmans or Bewley-Aiyagari models. We break down the response of the economy to a change in the environment or policy into two parts: the direct response at the given (pre-tax) prices, and the equilibrium response which plays out as prices change. Our main result demonstrates that under weak regularity conditions, regardless of the details of behavioral preferences, mistakes and constraints on decision-making, the long-run equilibrium will involve a greater capital-labor ratio if and only if the direct response (from the corresponding consumption-saving model) involves an increase in aggregate savings. One implication of this result is that, from a qualitative point of view, behavioral biases matter for long-run equilibrium if and only if they change the direction of the direct response. We provide detailed illustrations of how this result can be applied and generates new insights using models of misperceptions, self-control and temptation, and naive and sophisticated quasi-hyperbolic discounting.


JENSEN, M., & ACEMOGLU, D. (in press). Equilibrium Analysis in Behavioral One-Sector Growth Models. Review of Economic Studies,

Journal Article Type Article
Acceptance Date Dec 23, 2022
Deposit Date Jan 27, 2023
Publicly Available Date Feb 3, 2023
Journal Review of Economic Studies
Print ISSN 0034-6527
Publisher Oxford University Press
Peer Reviewed Peer Reviewed
Public URL
Publisher URL


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