Ramsey–Cass–Koopmans model

The Ramsey–Cass–Koopmans model (also known as the Ramsey growth model or the neoclassical growth model) is a foundational model in neoclassical economics that describes the dynamics of economic growth over time. It builds upon the pioneering work of Frank P. Ramsey (1928), with later extensions by David Cass and Tjalling Koopmans in the 1960s.

The model extends the Solow–Swan model by endogenizing the savings rate through explicit microfoundations of consumption behavior: rather than assuming a constant saving rate, the model derives it from the intertemporal optimization of a representative agent who chooses consumption to maximize utility over an infinite horizon. This approach leads to a richer dynamic structure in the transition to the long-run steady state, and yields a Pareto efficient outcome.

Ramsey originally formulated the model as a social planner’s problem—maximizing aggregate consumption across generations—before it was reformulated by Cass and Koopmans as a decentralized economy with a representative agent and competitive markets. The model is designed to explain long-run growth trends rather than short-term business cycle fluctuations and does not incorporate elements like market imperfections, heterogeneous agents, or exogenous shocks. Later developments, such as real business cycle theory, extended the model’s structure, allowing for government purchases, employment variations, and other shocks.