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Savings behavior with imperfect capital markets: When hyperbolic discounting leads to discontinuous strategies

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  • Wigniolle, Bertrand

Abstract

This paper provides a detailed study of a simple life-cycle consumption model with quasi-hyperbolic discounting and an imperfect financial market. It gives a complete characterization of savings behavior. The joint assumptions of quasi-hyperbolic discount factors and no-borrowing constraints may lead to non-convexities in selves’ objective functions that may imply discontinuous equilibrium strategies. The savings function may undergo jumps and non-monotonicities when the income or the interest rate reaches a threshold value. These “anomalies” may exist even for reasonable parameter values.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 116 (2012)
Issue (Month): 2 ()
Pages: 186-189

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Handle: RePEc:eee:ecolet:v:116:y:2012:i:2:p:186-189

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Web page: http://www.elsevier.com/locate/ecolet

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Keywords: Quasi-hyperbolic preferences; No-borrowing constraint; Discontinuous strategies;

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References

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  1. repec:hal:cesptp:halshs-00344463 is not listed on IDEAS
  2. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
  3. repec:hal:cesptp:halshs-00594060 is not listed on IDEAS
  4. repec:hal:cesptp:halshs-00565321 is not listed on IDEAS
  5. Favero, Carlo A, 2005. "Consumption, Wealth, the Elasticity of Intertemporal Substitution and Long-Run Stock Market Returns," CEPR Discussion Papers 5110, C.E.P.R. Discussion Papers.
  6. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  7. Wigniolle, Bertrand, 2012. "Savings behavior with imperfect capital markets: When hyperbolic discounting leads to discontinuous strategies," Economics Letters, Elsevier, vol. 116(2), pages 186-189.
  8. repec:hal:journl:halshs-00594060 is not listed on IDEAS
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Cited by:
  1. Bertrand Wigniolle, 2011. "Savings behavior with imperfect capital markets: when hyperbolic discounting leads to discontinuous strategies," Documents de travail du Centre d'Economie de la Sorbonne 11028, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Bertrand Wigniolle, 2013. "Fertility in the absence of self-control," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00823264, HAL.

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