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Welfare effects of controlling labor supply: an application of the stochastic Ramsey model

Amilon, Henrik LU and Bermin, Hans-Peter LU (2003) In Journal of Economic Dynamics and Control 28(2). p.331-348
Abstract
In this paper we extend Merton's (Rev. Econom. Stud. 42 (1975) 375) 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.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Malliavin calculus, dynamics, interest rate, stochastic control, utility maximization, Ramsey model
in
Journal of Economic Dynamics and Control
volume
28
issue
2
pages
331 - 348
publisher
Elsevier
external identifiers
  • wos:000185779200006
  • scopus:0037698042
ISSN
0165-1889
DOI
10.1016/S0165-1889(02)00167-7
language
English
LU publication?
yes
id
f074bbf0-c033-449e-8ca3-87205195db80 (old id 899888)
date added to LUP
2008-01-10 09:03:59
date last changed
2018-01-07 08:46:22
@article{f074bbf0-c033-449e-8ca3-87205195db80,
  abstract     = {In this paper we extend Merton's (Rev. Econom. Stud. 42 (1975) 375) 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.},
  author       = {Amilon, Henrik and Bermin, Hans-Peter},
  issn         = {0165-1889},
  keyword      = {Malliavin calculus,dynamics,interest rate,stochastic control,utility maximization,Ramsey model},
  language     = {eng},
  number       = {2},
  pages        = {331--348},
  publisher    = {Elsevier},
  series       = {Journal of Economic Dynamics and Control},
  title        = {Welfare effects of controlling labor supply: an application of the stochastic Ramsey model},
  url          = {http://dx.doi.org/10.1016/S0165-1889(02)00167-7},
  volume       = {28},
  year         = {2003},
}