Self-control and savings

Vidal, Jean-Pierre () and Philippe Michel
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Vidal, Jean-Pierre: European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 211, Working Paper Series from European Central Bank

Abstract: We reconsider the well-established paradigm of a rational individual's choice of a consumption schedule, building on the idea that people devote resources to withstand their desire for immediate consumption, thereby becoming more patient. We construct an infinite-horizon model of a small open economy, in which individuals accumulate a stock of personal capital reducing the discount on future consumption. Personal capital captures the effect of consumers' past experience and choices on their future utilities. Our results are: i) when individuals are heterogenous with respect to ability to become patient all individuals exhibit the same rate of time preference in the long run; ii) effort is rewarded in the long run to the extent that individuals who need to make more effort to become patient are wealthier and enjoy a higher level of utility in the steady state. The latter result stems from the complementary between personal capital and deferred consumption. JEL Classification: E13.

Keywords: Neoclassical; general; aggregative; models. (search for similar items in EconPapers)
Date: 2003-01
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