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
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
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Journal Article: Hyperbolic discounting and endogenous growth (2015)
Working Paper: Hyperbolical Discounting and Endogenous Growth (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:175
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