Title: Hyperbolic discounting and endogenous growth
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.
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 20
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