The dynamics of capital accumulation in an overlapping generations model

This paper studies capital accumulation in a slightly altered, explicit OLG model. The fundamental difference with the standard model lies in the initial conditions. If a portion of the initial allocation of the capital stock is not assigned to retirees, the framework allowing for a genuine accumulation of capital is provided. Dynamic aspects of the resulting model are analyzed, including dynamics of the quotas of capital stock, shares of total output, partial influences of parameters, the connection between the depreciation rate and capital’s contribution to production, and the relation of the latter to saddle-node bifurcations and the existence of real-valued equilibria. It is demonstrated that the model is able to describe the initial phase of accumulation. © 2001 Elsevier Science B.V. All rights reserved. JEL classification: 020; 111