Hyperbolic Discounting, Labour Supply, and Growth

Christopher Tsoukis (), Frederic Tournemaine and Edward John Driffill ()
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Christopher Tsoukis: Keele University
Edward John Driffill: Yale-NUS College

Chapter Chapter 5 in Social and Behavioural Macroeconomics, 2025, pp 159-200 from Springer

Abstract: Abstract This Chapter combines “hyperbolic discounting” (HD) with status-seeking and analyses the implications for the rate of growth and for income and wealth distribution. In addition to reviewing the relevant literature, we also derive new results in an otherwise standard intertemporally optimising setup with a CES production function. We propose a model of HD which allows the “present-bias” to be parameterised and contrasts its implications with those of exponential discounting (in continuous time). Any non-exponential discounting scheme implies a time inconsistency of the optimal plan, as a given intertemporal dilemma will receive a different resolution depending on its time-distance from the planning period. As a result, standard intertemporal optimisation methods do not apply. The setup produces a steady-state, balanced-growth path. A rise in exogenous present-bias decreases the growth rate, labour supply and the (neoclassical) government spending multiplier. It also has implications for inequality via the labour share and the “r − g” differential.

Keywords: Intertemporal optimisation; Present-bias; Hyperbolic discounting; Labour supply; Endogenous growth (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-77748-6_5

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DOI: 10.1007/978-3-031-77748-6_5

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