On optimality, endogenous discounting and wealth accumulation

Ingmar Schumacher

No 2006103, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We endogenize the discount rate via a broad measure of wealth and provide empirical evidence that wealth affects the discount rate negatively. We demonstrate that the Pontryagin conditions require positive felicity for intuitive results, whereasthe concavity of the Hamiltonian requires negative felicity for optimality. This dilemma also holds for the endogenizations of Obstfeld (1990) and followers. We solve the model with positive felicity and resolve when optimality is possible. We discussthe impact on technological change, savings and convergence which are more in line with empirics. Finally, we discuss time consistency of a planner who cannot predict his preferences.

Keywords: endogenous time preference; stability; optimal growth; recursive utility (search for similar items in EconPapers)
JEL-codes: C61 D90 O41 (search for similar items in EconPapers)
Date: 2006-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://sites.uclouvain.be/core/publications/coredp/coredp2006.html (text/html)

Related works:
Working Paper: On optimality, endogeneous discounting and wealth accumulation (2006)
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:cor:louvco:2006103

Access Statistics for this paper

More papers in LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().