Heterogeneous Time-Preference and the Distribution of Wealth

David Andolfatto () and James Redekop
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James Redekop: The University of Waterloo

Macroeconomics from University Library of Munich, Germany

Abstract: This paper analyzes a dynamic model in which physical capital can be accumulated or depleted, and labour supply is endogenous. The distribution of income is then endogenously determined by both technological parameters of production, and the distribution of agents' discount parameters. Degenerate wealth distributions, in which only the most patient agents have any wealth, are avoided by having a fraction of the agents die each period, and bequeath their wealth to descendants with independently random discount parameters. On average, more patient agents will have higher wealths and incomes, but in the short run agents' stocks of wealth depend on their inherited wealth. If a patient individual lives long enough, she will retire and live on only investment income, while if an impatient individual lives long enough, he will deplete all his wealth and live on only labour earnings. The effects of a general increase in patience are an increase in the wage rate, a lowering of the return on capital, and general increases in wealth, income, and utility. Possibilities for engineering such an increase, by promoting 'artificial patience', could include favourable taxation of investment income, forced savings such as payroll-tax financed pension plans, or public subsidies for education and health.

Keywords: time-preference; patience; wealth (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Pages: 29 pages
Date: 2003-10-06
New Economics Papers: this item is included in nep-dge
Note: Type of Document - Tex/; prepared on IBM PC; to print on Lexmark Optra E310; pages: 29
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0310004

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