🤖 AI Summary
This paper examines how individual prudence—the concern for the minimum utility over time—affects poverty traps and equilibrium multiplicity in an overlapping-generations (OLG) framework. Employing a dynamic general equilibrium model with an endogenous utility floor constraint, the analysis combines comparative statics and transitional path analysis. Results show that prudence does not unilaterally exacerbate poverty: when productivity is low or factor substitution elasticity is small, heightened prudence deepens poverty traps and generates multiple steady states—including a low-growth equilibrium; conversely, under higher productivity or greater substitutability, it may facilitate convergence. The key contribution lies in endogenizing the “minimum utility concern” as an intertemporal decision constraint—thereby identifying a novel interaction between prudence and technological structure. This extension enriches the OLG paradigm’s capacity to explain persistent inequality and growth stagnation.
📝 Abstract
We investigate the effects of wariness (defined as individuals' concern for their minimum utility over time) on poverty traps and equilibrium multiplicity in an overlapping generations (OLG) model. We explore conditions under which (i) wariness amplifies or mitigates the likelihood of poverty traps in the economy and (ii) it gives rise to multiple intertemporal equilibria. Furthermore, we conduct comparative statics to characterize these effects and to examine how the interplay between wariness, productivity, and factor substitutability influences the dynamics of the economy.