Savings behavior with imperfect capital markets: when hyperbolic discounting leads to discontinuous strategies
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
This paper provides a detailed study of a simple life-cycle consumption model with quasi-hyperbolic discounting and an imperfect financial market. It gives a complete characterization of savings behaviors. The joint assumptions of quasi-hyperbolic discount factors and no-borrowing constraints may lead to non-convexities in selves' objective functions that may imply discontinuous equilibrium strategies. Savings function may undergo jumps and non-momotonicities when the income or the interest rate reach a threshold value. These "anomalies" may exist even for reasonable parameters values.
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Journal Article: Savings behavior with imperfect capital markets: When hyperbolic discounting leads to discontinuous strategies (2012)
Working Paper: Savings behavior with imperfect capital markets: when hyperbolic discounting leads to discontinuous strategies (2011)
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Persistent link: http://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00594060
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