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Title: Optimal resource allocation in a representative investor economy
Authors: Gomes, O.
Keywords: Representative investor
Agency problem
Optimal control
Saddle-path stability
Neoclassical growth model
AK endogenous growth model
Sentiment shocks
Issue Date: 2015
Publisher: Elsevier
Abstract: The Ramsey–Cass–Koopmans neoclassical growth setup and the AK endogenous growth framework are two prototypes of a class of growth models where, by assumption, investment resources are always perfectly allocated to production. As a corollary, these models offer a partial view of the growth process circumscribed to a limit case, namely the most favorable case in which all possible frictions on the allocation of investment resources are absent. This paper adds to the conventional growth setup an optimal mechanism of assignment of investment resources that contemplates the possibility of inefficient allocation. In the assumed economy there is a single representative investor and a large number of firms that compete for the available resources. The new setup highlights how agency costs may deviate the economy from the benchmark growth outcome, potentially generating less desirable long-run results. The appeal of the proposed framework resides also on the fact that new determinants of growth emerge and take a leading role, namely the investor's sentiment and the quality of the firms' investment proposals.
Peer reviewed: yes
DOI: 10.1016/j.econmod.2015.06.008
ISSN: 0264-9993
Accession number: WOS:000361253400008
Appears in Collections:BRU-RI - Artigos em revistas científicas internacionais com arbitragem científica

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