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Hyperbolic discounting and endogenous growth

Holger Strulik ()

Economics Letters, 2015, vol. 126, issue C, 131-134

Abstract: This paper provides the closed form 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, a strong equivalence result holds. If hyperbolic 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 preferences are harmless for economic growth.

Keywords: Hyperbolic discounting; Time-inconsistency; Endogenous growth (search for similar items in EconPapers)
JEL-codes: D91 E21 O40 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Hyperbolical Discounting and Endogenous Growth (2014) Downloads
Working Paper: Hyperbolical discounting and endogenous growth (2013) Downloads
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