Extending the Ramsey Equation further: Discounting under Mutually Utility Independent and Recursive Preferences

Svenja Hector

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: I revisit the consumption discount rate for a novel combination of standard assumptions. To disentangle risk and time preferences, I consider a decision maker with recursive preferences la Kreps and Porteus (1978). Moreover I assume that preferences are mutually utility independent in the sense of Koopmans (1960). In an in finite horizon setting with independent growth risk and constant elasticity of substitution, the consumption discount rate is diminished by a previously unrecognised horizon effect. This effect may be signifi cant if the rate of pure time preference is moderately small.

JEL-codes: D81 D90 H43 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-gro
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