Hyperbolical Discounting and Endogenous Growth

Holger Strulik

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper provides the exact analytical solution for the standard model of endogenous growth when consumers have present-biased preferences and make time-inconsistent savings plans, which they revise continuously. It is shown that long-run growth is not necessarily lower under present-biased preferences. In fact, an equivalence result holds. If hyperbolical discounting provides the same present value of a constant infinite income stream as standard exponential discounting, then the equilibrium rate of economic growth is also the same under both discounting methods. In this sense present-bias and the entailed time-inconsistency of savings plans are harmless for economic growth. The result is robust to the introduction of non-homothetic utility and a variable elasticity of intertemporal substitution in consumption.

JEL-codes: D91 E21 O40 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-mac and nep-upt
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Related works:
Journal Article: Hyperbolic discounting and endogenous growth (2015)
Working Paper: Hyperbolical discounting and endogenous growth (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100560

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