Working Paper BETA #2024-23

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Title : Taste for nature and long-run cycles

Author(s) : Stefano BOSI, David DESMARCHELIER, Thai HA-HUY

Abstract : From a dynamic perspective, the existing literature on renewable resources in a Ramsey economy is puzzling. On the one hand, the central plannerís solution leads to the occurrence of limit cycles around the lower steady state (Wirl, 2004); on the other hand, limit cycles arise in a market economy around the higher steady state (Bosi and Desmarchelier, 2018). To reconcile these Öndings, we study the competitive equilibrium of a discrete-time Ramsey-Cass-Koopmans model with a renewable resource, where preferences are represented by two di§erent utility functions with Constant Static Elasticity of Substitution (CSES) and Constant Intertemporal Elasticity of Substitution (CIES). In the CSES case, we recover the dynamics highlighted by Wirl (2004), while, in the CIES case, the ones obtained by Bosi and Desmarchelier (2018). Moreover, this conclusion is robust under two alternative regeneration processes for the resource (power and logistic laws). In other words, the dynamics seems to depend more on the preference structure than on the market structure (central planner versus market economy).

Key-words : Ramsey model, reproduction law, pollution, two-period and limit cycles.

JEL Classification : C61, E32, 044.