The Turnpike of Dynamic General Equilibrium Paths and Its Insensitivity to Initial Conditions*

Bewley considers a dynamic general equilibrium model with heterogeneous consumers. Assuming that the future is sufficiently important, he shows that an equilibrium path converges to a limit which depends upon initial conditions. This study shows that the limit lies near the stationary state independent of initial conditions. This state is the economy’s so-called turnpike ~ a turnpike is usually considered to be independent of initial conditions. An equilibrium path exists only if consumers discount future utilities. Despite this myopia of consumers, dynamic equilibria turn out to be almost Pareto efficient with respect to the non-myopic preferences defined by consumers’ periodwise utility functions.