Jaime Alonso-Carrera

Aspirations, Habit Formation, and Bequest Motive

We analyze how the presence of endogenous preferences affects the altruistic bequest motive from parents to children. We will show that the existence of habits raises the threshold value of the intergenerational discount factor above which altruistic bequests are positive, while aspiration formation could push this value down. Therefore, the dynamic inefficiency of the economy with no altruism is not sufficient to prevent the bequest motive from being operative under aspiration formation. We also discuss the implications of public debt when the bequest motive is inoperative and preferences exhibit habit and aspiration formation.

Welfare Implications of the Interaction between Habits and Consumption Externalities

We analyze the welfare properties of the equilibrium path of a growth model where both habits and consumption externalities affect the utility of consumers. Our analysis highlights the crucial role played by complementarities between externalities and habits in order to generate an inefficient dynamic equilibrium. In particular, we show that the competitive equilibrium is inefficient when consumption externalities and habit adjusted consumption are not perfect substitutes.

Demand-Based Structural Change and Balanced Economic Growth

We analyze the equilibrium of a multi-sector exogenous growth model where the introduction of minimum consumption requirements drives structural change. We show that equilibrium dynamics simultaneously exhibit structural change and balanced growth of aggregate variables as is observed in US when the initial intensity of minimum consumption requirements is sufficiently small. This intensity is measured by the ratio between the aggregate value of the minimum consumption requirements and GDP and, therefore, it is inversely related with the level of economic development. Initially rich economies benefit from an initially low intensity of the minimum consumption requirements and, as a consequence, these economies end up exhibiting balanced growth of aggregate variables, while there is structural change. In contrast, initially poor economies suffer from an initially large intensity of the minimum consumption requirements, which makes the growth of the aggregate variables unbalanced during a very large period. These economies may never exhibit simultaneously balanced growth of aggregate variables and structural change.

The Subsidy to Human Capital Accumulation in an Endogenous Growth Model: A Comparative Dynamics Analysis

This paper analyzes both the growth and the dynamic effects of the subsidy to human capital investment in a two-sector endogenous growth model. We show that the subsidy is growth-increasing, and it determines the dynamic behavior of the physical and human capital variables. Moreover, the economy reacts instantaneously to unanticipated changes in the subsidy rate. We prove that the jolt caused by the marginal introduction of the subsidy depends on whether the inverse of the elasticity of intertemporal substitution in consumption is larger than the elasticity of marginal productivity of labor with respect to physical capital.

Consumption composition and macroeconomic dynamics

Abstract We analyze the transitional dynamics of an economic model with heterogeneous consumption goods where convergence is driven by two different forces: the typical diminishing returns to capital and the dynamic adjustment in consumption expenditure induced by the variation in relative prices. We show that this second force affects the growth rate if the consumption goods are produced with technologies exhibiting different capital intensities and if the intertemporal elasticity of substitution is not equal to one. Because the aforementioned growth effect of relative prices arises only under heterogeneous consumption goods, the transitional dynamics of this model exhibits striking differences with the growth model with a single consumption good. We also show that these differences in the transitional dynamics can give raise to large discrepancies in the welfare cost of shocks.

On learning to forecast in an endogenous growth model with externalities

Abstract This paper investigates whether learning leads to `perfect foresight’ in a growth model that might present local indeterminacy of perfect foresight equilibria. The paper asserts that, under some parametric conditions on technology and preferences, equilibria under the assumption of learning converge to a limit point that is different from the one corresponding to perfect foresight equilibria. The paper also concludes that endogenous cycles may emerge in the economy with learning and in the economy with perfect foresight. However, the combination of parameters for which these fluctuations appear may differ in each economy.

Labor Mobility, Structural Change and Economic Growth

This paper develops a two-sector growth model in which the process of structural change in the sectoral composition of employment and GDP is jointly determined by non-homothetic preferences and labor mobility cost. This cost, paid by workers moving to another sector, limits structural change. Our model can explain the following patterns of development of the US economy throughout the period 1880-2000: (i) balanced growth of the aggregate variables in the second half of the last century; (ii) structural change in the sectoral composition of employment between agriculture and non-agriculture sectors; (iii) structural change process in the sectoral composition of GDP between these sectors; and (iv) wage convergence between the two sectors. We outline that the last two patterns can only be explained if labor mobility cost is introduced. Results reveal that mobility cost generates a misallocation of production factors. This implies a loss of GDP which amounts to over 30% of the GDP throughout initial periods according to the calibrated model. During the transition, the loss of GDP decreases and eventually vanishes. Thus, the elimination of the misallocation explains part of the increase in the GDP. Additionally, this study points out that misallocation introduces a mechanism through which cross-country differences in sectoral composition may account for cross-country income differences.

Anatomizing the Mechanics of Structural Change

We characterize several possible mechanisms of structural change by using a general multisector growth model, where preferences and technologies are not parameterized. In this generic set up, we derive the growth rates of sectoral employment shares at the equilibrium. We find that the economic fundamentals governing structural change in the sectoral employment shares are: (i) the income elasticities of the demand for consumption goods; (ii) the Allen-Uzawa elasticities of substitution between consumption goods; (iii) the capital income shares in sectoral outputs; and (iv) the elasticity of substitution between capital and labor in each sector. These fundamentals determine the effect that the growth rates of aggregate income, relative prices, rental rates and technological progress have on structural change. Finally, we estimate the aforementioned fundamentals to develop an accounting exercise that quantifies the contribution of each mechanism to the U.S. structural change.