Hyperbolic discounting and endogenous growth
2015 | journal article. A publication with affiliation to the University of Göttingen.
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- Authors
- Strulik, Holger
- 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. (C) 2014 Elsevier B.V. All rights reserved.
- Issue Date
- 2015
- Status
- published
- Publisher
- Elsevier Science Sa
- Journal
- Economics Letters
- ISSN
- 1873-7374; 0165-1765