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Capital accumulation with tangible assets

[journal article]

Böhm, Volker; Vachadze, George

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Abstract The paper develops a neoclassical growth model with capital accumulation and a retradable tangible asset in an overlapping generations framework. It analyzes its effect on the dynamics of capital accumulation. Two period lived consumers hold portfolios consisting of real capital and the tangible asset. It is shown that the possibility of trading the tangible asset as an alternative to capital may cause the coexistence of stable steady states with high and low levels of capital and with disjoint basins of attraction. Thus, the so-called poverty trap may appear purely endogenously generated as a consequence of asset trading alone. The possibility of the occurrence of the poverty trap is reduced as factors of production become more substitutable. However, the result is robust for continua of homogeneous as well as heterogeneous consumers.
Classification Political Economy
Free Keywords Capital accumulation; Existence and stability of equilibria; Portfolio choice; Poverty trap; Tangible asset; C62; D91; G11; G12; O11
Document language English
Publication Year 2008
Page/Pages p. 248-257
Journal Journal of Economic Behavior & Organization, 68 (2008) 1
DOI http://dx.doi.org/10.1016/j.jebo.2008.04.005
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)