The dynamics of efficient intertemporal allocations with many agents, recursive preferences, and production (Q1114574)

A complete characterization of the local behaviour of optimal paths is given in an economy with n heterogeneous agents, one-sector production and recursive but not time-separable preferences. The steady state is unique and saddle-point stable if the agents' utilities satisfy the normality (monotonicity of response of future consumption to a perturbation in initial wealth) and increasing marginal impatience conditions. The same result is obtained for the two-sector and two-agent economy unless the consumption goods sector is sufficiently capital- intensive.