Hyperbolic Discounting and Secondary Markets

Volker Nocke and Martin Pietz ()
Additional contact information
Martin Pietz: Temporary Address: Fundamentos Analisis Economico, Universidad de Alicante

No 2001-W17, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: We study the effect of hyperbolic discounting on competitive equilibria in secondary markets for a durable good. Under exponential discounting, secondary markets are irrelevant in our model. They do not affect the price in the initial period and are neutral to the allocation. Under hyperbolic discounting, secondary markets are not neutral: they do affect price and allocation. The price in the unique competitive Markov equilibrium is lower than the price in the absence of secondary markets. This affects the equilibrium supply of the durable good in the initial period. We characterise all stationary competitive equilibria in terms of prices. In particular, we obtain that there are stationary competitive equilibria in which trade occurs in each period and the allocation of the durable good is inefficient. Furthermore, we show that there exist competitive equilibria with increasing, decreasing, and cycling price paths, despite the stationarity of the market environment.

Keywords: hyperbolic discounting; secondary markets; durable good; time inconsistency (search for similar items in EconPapers)
JEL-codes: D40 D91 L11 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2001-12-12
New Economics Papers: this item is included in nep-mic
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nuff.ox.ac.uk/Economics/papers/2001/w17/secondnewh.pdf (application/pdf)

Related works:
Journal Article: Hyperbolic discounting and secondary markets (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0117

Access Statistics for this paper

More papers in Economics Papers from Economics Group, Nuffield College, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Maxine Collett ().