Behavioural changes and distribution effects in a Pasinetti-Solow model

We present an overlapping generation model describing an economy in which two types of agents may co-exist: ‘workers’ and capitalists’. Workers and capitalists are assumed to save on the basis of rational choices. Workers face a finite time horizon and base their consumption choices on a life-cycle motive, whereas capitalists – whose only source of income is profit – behave like an infinitely-lived dynasty. Depending on their income workers may have a switch in behaviour: above a certain threshold they may decide to leave bequests to their offspring according to a ‘warm glow’ motive. The resulting model is in two dimensions with a discontinuity. We study the dynamics properties of the 2D model with switch in behaviour both in relation to the local stability properties and to the global dynamics verifying how the threshold impinges on those properties. We will also verify how changes in workers behaviour affects capital accumulation. This will be crucial, to study the effects on the distribution of capital between the two groups.