Introduction ix
Part One Aggregate Growth and Individual Savings 1
Chapter One: Production and Distribution ofIncome in a Market Economy 3
1.1 Accounting 4
1.2 The Neoclassical Theory of Distribution 8
Chapter Two: Exogenous Savings Propensities 14
2.1 A Linear Consumption Function 16
2.2 References and Further Issues 25
Chapter Three: Optimal Savings 28
3.1 The Optimal Consumption Path 29
3.2 The Dynamics of Accumulation and Distribution 36
3.3 Welfare Distribution in Complete Markets 41
3.4 References and Further Issues 46
3.5 Appendix:HARA Preferences 47
3.6 Review Exercises 48
Chapter Four: Factor Income Distribution 51
4.1 Factor Shares and Savings in Early Growth Models 53
4.2 Factor Shares in the Neoclassical Growth Model 57
4.3 Optimal Savings and Sustained Growth 63
4.4 Policy and Political Economy 70
4.5 References and Further Issues 77
4.6 Appendix:Factor Shares in a Two-Sector Growth Model 81
Chapter Five: Savings and Distribution with Finite Horizons 88
5.1 Distribution and Growth in the Two-Period OLG Model 90
5.2 Inequality in a Perpetual Youth Model 104
5.3 One-Period Lifetimes and Bequests 115
5.4 References and Further Issues 122
5.5 Appendix:Consumption in the Perpetual Youth Model 124
Chapter Six: Factor Shares and Taxation in the OLG Model 127
6.1 Factor Shares in the Two-Period Model 128
6.2 Factor Shares and Growth in the Perpetual Youth Model 138
6.3 References and Further Issues 143
Part Two: Financial Market Imperfections 145
Chapter Seven: Investment Opportunities and the Allocation ofSavings 147
7.1 Decreasing Returns to Individual Investment 148
7.2 Increasing Returns and Indivisibilities 158
7.3 Endogenous Factor Prices and "Trickle-Down "Growth 165
7.4 References and Further Issues 172
7.5 Review Exercises 177
Chapter Eight: Risk and Financial Markets 180
8.1 Optimization under Uncertainty 181
8.2 Rate-of-Return Risk 189
8.3 Portfolio Choice and Risk Pooling 195
8.4 References and Further Issues 200
8.5 Review Exercise 202
Chapter Nine: Uninsurable Income Shocks 204
9.1 A Two-Period Characterization 205
9.2 General Equilibrium:The CARA Case 210
9.3 General Equilibrium:The CRRA Case 214
9.4 Application:Uninsurable Risk in the Labor Markets 226
9.5 References and Further Issues 235
P rt Three Many Goods 239
Chapter Ten: Distribution and Market Power 241
10.1 Growth through Expanding Product Variety 243
10.2 Variable Elasticities of Substitution 252
10.3 Factor Shares,Taxation,and Political Economy 262
10.4 References and Further Issues 264
Chapter Eleven: Indivisible Goods and the Composition of Demand 266
11.1 Income Distribution and Product Diversity 268
11.2 The Introduction of New Products 275
11.3 Inequality and Vertical Product Differentiation 285
11.4 References and Further Issues 298
Chapter Twelve: Hierarchic Preferences 302
12.1 A Basic Framework 303
12.2 Growth,Distribution,and Structural Change 313
12.3 References and Further Issues 319
Chapter Thirteen: Dynamic Interactions of Demand and Supply 321
13.1 Learning by Doing and Trickle-Down 322
13.2 Demand Composition and Factor Rewards 328
13.3 References and Further Issues 337
Solutions to Exercises 339
References 399
Index 419