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Capital accumulation game with quasi-geometric discounting and consumption externalities

Koichi Futagami () and Yuta Nakabo ()
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Yuta Nakabo: Nara University

Economic Theory, 2021, vol. 71, issue 1, No 9, 281 pages

Abstract: Abstract This study introduces quasi-geometric discounting into a simple growth model of common capital accumulation that takes consumption externalities into account. We examine how present bias affects economic growth and welfare, and we consider two equilibrium concepts: the non-cooperative Nash equilibrium (NNE) and the cooperative equilibrium (CE). We show that the growth rate in the NNE can be higher than that in the CE if individuals strongly admire the consumption of others regardless of the magnitude of present bias. Contrary to the results in the time-consistent case, we show that, when present bias is incorporated, the welfare level in the NNE can be higher than that in the CE in the initial period. However, in later periods, this relationship can be reversed depending on the difference in the speed of capital accumulation.

Keywords: Capital accumulation game; Quasi-geometric discounting; Consumption externalities (search for similar items in EconPapers)
JEL-codes: C73 E21 Q20 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Capital Accumulation Game with Quasi-Geometric Discounting and Consumption Externalities (2018) Downloads
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DOI: 10.1007/s00199-019-01243-2

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