Scandinavian Working Papers in Economics
Working Papers,
Lund University, Department of Economics
No 2001:9: Welfare Effects of Controlling Labor Supply? An Application of the Stochastic Ramsey Model
Henrik Amilon () and Hans-Peter Bermin ()
Additional contact information
Henrik Amilon: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Hans-Peter Bermin: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Abstract: In this paper we extend Merton's (1975) classic stochastic version of the Ramsey model by allowing the government to control the expected growth rate of the labor supply. We characterize the solution to this control problem for general time-separable preferences, and derive an analytical solution for the CRRA case. The results show to what extent the planner, or government, increases consumption and welfare by taking an active role in controlling the economy. We also explore the implications of government control of labor growth for the term structure of interest rates and the effects of taxes on capital.
Keywords: Utility maximization; Ramsey model; stochastic control; interest rate dynamics; Malliavin calculus
JEL-codes: C68; D81; E21; E24; E43; E61
34 pages, First version: July 10, 2001. Revised: March 11, 2002. Earlier revisions: February 19, 2002.
- Published as
- Henrik Amilon and Hans-Peter Bermin, (2003), 'Welfare Effects of Controlling Labor Supply? An Application of the Stochastic Ramsey Model', Journal of Economic Dynamics and Control, vol 28, pages 331-348
Questions (including download problems) about the papers in this series should be directed to Iker Arregui Alegria ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:lunewp:2001_009This page generated on 2024-09-13 22:16:09.