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A model with endogenously determined cycles, discounting and growth

Jean-Pierre Drugeon

Economic Theory, 1998, vol. 12, issue 2, 349-369

Abstract: This article reexamines the role of consumption in growth and emphasises the external effects of aggregate consumption, viewed as consumption standards, as an additional impediment in the growth process. These external effects raise the productivity of the individuals and are positively related to their valuation of the future. Conditions are established under which this results in a marginal value of wealth that is an increasing function of consumption. This brings new types of multiple steady states, local indeterminacies and cyclical motions. Imposing extra homogeneity restrictions, balanced growth solutions with endogenous impatience emerge. The possibility of multiple convergent paths is univocally related to endogenous discount effects. A comparison with a benchmark planning economy indicates an excessive value for the rate of time preference and emphasises its insufficient adaptation to future utility in a stationary setting. Discrepancies along the transition path that rest on endogenous impatience versus fixed discount appear in a non-stationary environment when the competitive balanced growth solution is indeterminate.

JEL-codes: D62 E32 O41 (search for similar items in EconPapers)
Date: 1998-08-19
Note: Received: May 5, 1996; revised version: May 19, 1997
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