David Cass - Research

Research

Cass made important contributions to pure economic theory, mostly in the field of general equilibrium theory. He made major contributions to the theory of optimal growth, the theory of sunspots and the theory of incomplete markets. He is perhaps best known for his article Optimum Growth in an Aggregative Model of Capital Accumulation, which was a part of his dissertation. In this paper he proves a necessary and sufficient condition for efficiency in the neoclassical growth model first introduced by Frank Ramsey. A major difference to the standard Ramsey growth model was that Cass considered the case where consumption in future periods is discounted, thus implicitly assuming that consumers prefer consumption today to consumption tomorrow. This modified version of the Ramsey growth model is also known as the Ramsey-Cass-Koopmans model, named after Frank Ramsey, David Cass and Tjalling Koopmans.

He was also famous for the "Cass criterion" for overlapping generations models and in the neoclassical growth model, and his work, together with Karl Shell, on the influence of extrinsic uncertainty on economic equilibria, also known as the concept of sunspot equilibria or the theory of sunspots. Together with Joseph Stiglitz he proved conditions under which it is possible for an investor to achieve an optimal portfolio under the restriction of being able to buy only two mutual funds. They also showed that generally the demand for money can not be derived from portfolio theory. Cass was also a major contributor to the theory of incomplete markets, the turnpike theory and theory of economies with markets that repeatedly open over time.