On optimality, endogeneous discounting and wealth accumulation

Ingmar Schumacher

No 2006058, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: We endogenize the discount rate via a broad measure of wealth and provide empirical evidence that wealth the discount rate negatively. We demonstrate that the Pontryagin conditions require positive felicity for intuitive results, whereas the concavity of the Hamiltonian requires negative felicity for optimality. This dilemna also holds for the endogenizations of Obstfeld (1990) and followers. We solve the model with positive felicity and resolve when optimality is possible. We discuss the impact on technological change, savings and convergence which are more in line with empirics. Finally, we discuss time consistency of a planner who cannot predict his preferences.

Keywords: Endogenous time preference; Stability; Optimal growth; Recursive utility (search for similar items in EconPapers)
JEL-codes: C61 D90 O41 (search for similar items in EconPapers)
Pages: 29
Date: 2006-11-01
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: On optimality, endogenous discounting and wealth accumulation (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvec:2006058

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