Sophistication drives higher growth than navïeté in the Ak model with hyperbolic discounting: An exhaustive numerical exploration

Manuel A. Gómez

Economics Letters, 2025, vol. 252, issue C

Abstract: This paper examines the Ak endogenous growth model with naïve and sophisticated agents under hyperbolic discounting. The utility function is isoelastic, with an intertemporal elasticity of substitution less than one. We derive a simple condition to verify that the effective rate of time preference is lower — and, consequently, the growth rate is higher — when agents are sophisticated rather than naïve. An extensive numerical analysis suggests that this condition holds across the entire feasible parameter space.

Keywords: Endogenous growth; Hyperbolic discounting; Naïve consumer; Sophisticated consumer (search for similar items in EconPapers)
JEL-codes: D91 E21 O40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:252:y:2025:i:c:s016517652500148x

DOI: 10.1016/j.econlet.2025.112311

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