Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5058773 | Economics Letters | 2015 | 4 Pages |
Abstract
This paper provides the closed form 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, a strong equivalence result holds. If hyperbolic 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 preferences are harmless for economic growth.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Holger Strulik,