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Hyperbolical discounting and endogenous growth

Holger Strulik ()

No 175, Center for European, Governance and Economic Development Research Discussion Papers from University of Goettingen, Department of Economics

Abstract: This paper provides the exact analytical solution for the standard model of endogenous growth when consumers have present-biased preferences and make time-inconsistent savings plans, which they revise continuously. It is shown that long-run growth is not necessarily lower under present-biased preferences. In fact, an equivalence result holds. If hyperbolical discounting provides the same present value of a constant infinite income stream as standard exponential discounting, then the equilibrium rate of economic growth is also the same under both discounting methods. In this sense present-bias and the entailed time-inconsistency of savings plans are harmless for economic growth. The result is robust to the introduction of non-homothetic utility and a variable elasticity of intertemporal substitution in consumption.

Keywords: hyperbolic discounting; time-inconsistency; endogenous growth; adjustment dynamics (search for similar items in EconPapers)
JEL-codes: D91 E21 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-upt
Date: 2013
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https://www.econstor.eu/bitstream/10419/87710/1/771762453.pdf (application/pdf)

Related works:
Journal Article: Hyperbolic discounting and endogenous growth (2015) Downloads
Working Paper: Hyperbolical Discounting and Endogenous Growth (2014) Downloads
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