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Unbounded growth in the Neoclassical growth model with non-constant discounting

Francisco Cabo, Guiomar Martin-Herran and María Pilar Martínez-García ()

Mathematical Social Sciences, 2016, vol. 84, issue C, 93-104

Abstract: For a Neoclassical growth model, the literature highlights that exponential discounting is observationally equivalent to quasi-hyperbolic discounting, if the instantaneous discount rate decreases asymptotically towards a positive value. Conversely, in this paper a zero long-run value allows a solution without stagnation. We prove that a less than exponential but unbounded growth can be attained, even without technological progress. The growth rate of consumption decreases asymptotically towards zero, although so slowly that consumption grows unboundedly. The asymptotic convergence towards a non-hyperbolic steady-state which saving rate matches the intertemporal elasticity of substitution and the speed of convergence towards this equilibrium are analyzed.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:84:y:2016:i:c:p:93-104

DOI: 10.1016/j.mathsocsci.2016.10.001

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