Hyperbolical discounting and endogenous growth

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: cege Discussion Papers ; No. 175

Classification and Topics

• Classification: Wirtschaft ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Macroeconomics: Consumption; Saving; Wealth ; Economic Growth and Aggregate Productivity: General
• Subject: hyperbolic discounting ; time-inconsistency ; endogenous growth ; adjustment dynamics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Strulik, Holger
• Event: Veröffentlichung
• (who): University of Göttingen, Center for European, Governance and Economic Development Research (cege)
• (where): Göttingen
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/87710
• Last update: 05.03.2025, 12:00 AM CET