Risk, the spirit of capitalism and growth: The implications of a preference for capital


This paper incorporates the "spirit of capitalism," or a "preference for capital" into a stochastic growth model. In a non-stochastic model, such as Zou (1994), this "preference for capital" accelerates growth by reducing the rate of time preference. In a stochastic setting, however, the desire for accumulation affects growth in more complicated ways. An increase in the capitalist spirit always reduces the rate of time preference, but it may increase or decrease risk aversion. In turn, growth may accelerate or decelerate, depending upon consumers' willingness to substitute over time, and upon the range of investments in the economy.

Publication Title

Journal of Macroeconomics