How innocuous is it to approximate globally decreasing impatience with quasi-hyperbolic discounting?

Paul Calcott and Vladimir Petkov

Journal of Mathematical Economics, 2024, vol. 111, issue C

Abstract: This paper studies the behavior of a consumer whose time preferences exhibit globally decreasing impatience. We ask how well this behavior could be approximated with quasi-hyperbolic discounting. We find that a quasi-hyperbolic approximation can reproduce the consumer’s equilibrium strategies and their local comparative statics. However, such an approximation would provide biased assessments of measures to mitigate excessive consumption. We identify a range of biases relating to investment in illiquid assets, and to corrective taxes on sin goods. The quantitative implications of these biases are evaluated in numerical examples. For plausible parameter values, the quasi-hyperbolic approximation significantly overstates the effectiveness and the welfare consequences of the responses to excessive consumption.

Keywords: Generalized hyperbolic discounting; Consumption; Markov-perfect equilibrium (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030440682400020X
Full text for ScienceDirect subscribers only

Related works:
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:eee:mateco:v:111:y:2024:i:c:s030440682400020x

DOI: 10.1016/j.jmateco.2024.102958

Access Statistics for this article

Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii

More articles in Journal of Mathematical Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().