Equilibrium Analysis in Behavioural One-Sector Growth Models

Abstract Rich behavioural biases, mistakes, and limits on rational decision-making are often thought to make equilibrium analysis much more intractable. We establish that this is not the case in context of one-sector growth models such as Ramsey–Cass–Koopmans or Bewley–Aiyagari models. break down response economy a change environment policy into two parts: direct at given (pre-tax) prices, which plays out prices change. Our main result demonstrates under weak regularity conditions, regardless details preferences, mistakes constraints decision-making, long-run will involve greater capital-labour ratio if only (from corresponding consumption-saving model) involves an increase aggregate savings. One implication that, from qualitative point view, biases matter for they direction response. provide detailed illustrations how can be applied generate new insights using misperceptions, self-control temptation, naive sophisticated quasi-hyperbolic discounting.