Poverty Traps and Growth in a Model of Endogenous Time Preference
AbstractWe introduce endogenous probability of survival in the Keynes-Ramsey optimal growth model. An individual's probability of survival is assumed to be dependent on past levels of consumption. Endogenous probability of survival implies that the rate of time preference (or degree of patience) of an individual is endogenously determined. We solve the dynamic optimization problem facing an agent and provide a complete characterization of the steady states and their stability properties. We find that with endogenous rate of time preference an economy may have multiple steady state equilibria. The equilibrium an economy converges to depends on its initial conditions. The results are interpreted in light of the growth experiences of developing economies. The model can explain why two economies that have identical production technologies and identical preferences may converge to different levels of income depending on initial conditions. We estimate the relationship between adult probability of survival and lagged consumption for a cross section of countries. Our estimation results and subsequent simulations of the model suggest that if we interpret capital in our model broadly to include both physical and human capital, poverty traps are empirically plausible.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): 12 (2012)
Issue (Month): 1 (July)
Contact details of provider:
Web page: http://www.degruyter.com
Other versions of this item:
- Debajyoti Chakrabarty, 2000. "Poverty traps and Growth in a model of Endogenous Time Preference," Departmental Working Papers 200018, Rutgers University, Department of Economics.
- Chakrabarty, Debajyoti, 2002. "Poverty traps and growth in a model of endogenous time preference," ZEI Working Papers B 27-2002, ZEI - Center for European Integration Studies, University of Bonn.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
- Galor, Oded & Zeira, Joseph, 1988.
"Income Distribution and Macroeconomics,"
51644, University Library of Munich, Germany, revised 01 Sep 1989.
- Maurice Obstfeld, 1991.
"Intertemporal Dependence, Impatience, and Dynamics,"
NBER Working Papers
3028, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice, 1990. "Intertemporal dependence, impatience, and dynamics," Journal of Monetary Economics, Elsevier, vol. 26(1), pages 45-75, August.
- Epstein, Larry G., 1983. "Stationary cardinal utility and optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 31(1), pages 133-152, October.
- Rolf Mantel, 1998. "Optimal Economic growth with recursive preferences: decreasing rate of time preference," Estudios de Economia, University of Chile, Department of Economics, vol. 25(2 Year 19), pages 161-178, December.
- Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
- Masao Ogaki & Andrew Atkeson, 1997. "Rate Of Time Preference, Intertemporal Elasticity Of Substitution, And Level Of Wealth," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 564-572, November.
- Chakrabarty, Debajyoti, 2003.
"Growth and Business Cycles with Imperfect Credit Markets,"
7, University of Sydney, School of Economics.
- Chakrabarty, Debajyoti, 2002. "Growth and business cycles with imperfect credit markets," ZEI Working Papers B 29A-2002, ZEI - Center for European Integration Studies, University of Bonn.
- Agénor, Pierre-Richard, 2010.
"A theory of infrastructure-led development,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 34(5), pages 932-950, May.
- Pierre-Richard Agénor, 2006. "A Theory of Infrastructure-led Development," Centre for Growth and Business Cycle Research Discussion Paper Series 83, Economics, The Univeristy of Manchester.
- Pierre-Richard Agénor, 2005.
"Health and Infrastructure in Models of Endogenous Growth,"
The School of Economics Discussion Paper Series
0539, Economics, The University of Manchester.
- P R Agénor, 2005. "Health and Infrastructure in Models of Endogenous Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 62, Economics, The Univeristy of Manchester.
- Pierre-Richard Agénor, 2006. "A Theory of Infrastructure-led Development," The School of Economics Discussion Paper Series 0640, Economics, The University of Manchester.
- Satya P. Das & Rajat Deb, 2003. "Policies to combat child labor: A dynamic analysis," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 04-01, Indian Statistical Institute, New Delhi, India.
- Michel, Philippe & Vidal, Jean-Pierre, 2003. "Self-control and savings," Working Paper Series 0211, European Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.