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Endogenous time preference, investment externalities, and equilibrium indeterminacy

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  • Kawagishi, Taketo
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    Abstract

    This paper analyzes a neoclassical growth model with endogenous time preference. Following Becker and Mulligan (1997), we assume that the household’s subjective discount rate decreases with its investment for patience. Furthermore, we extend the baseline setting by positing that the subjective discount rate depends on the average level of investment for patience in the economy (investment externalities) as well. Under these assumptions and the specification of each function, we show that equilibrium indeterminacy does not arise if investment externalities do not exist, while it can be observed in the presence of investment externalities.

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    Bibliographic Info

    Article provided by Elsevier in its journal Mathematical Social Sciences.

    Volume (Year): 64 (2012)
    Issue (Month): 3 ()
    Pages: 234-241

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    Handle: RePEc:eee:matsoc:v:64:y:2012:i:3:p:234-241

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    Web page: http://www.elsevier.com/locate/inca/505565

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    1. Heaton, John, 1993. "The Interaction between Time-Nonseparable Preferences and Time Aggregation," Econometrica, Econometric Society, vol. 61(2), pages 353-85, March.
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    5. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
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    8. Hayashi, Fumio, 1985. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1083-1113, November.
    9. Yasuhiro Nakamoto, 2009. "Consumption externalities with endogenous time preference," Journal of Economics, Springer, vol. 96(1), pages 41-62, January.
    10. Liu, Wen-Fang & Turnovsky, Stephen J., 2005. "Consumption externalities, production externalities, and long-run macroeconomic efficiency," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1097-1129, June.
    11. Michael Stern, 2006. "Endogenous time preference and optimal growth," Economic Theory, Springer, vol. 29(1), pages 49-70, September.
    12. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June.
    13. Das, Mausumi, 2003. "Optimal growth with decreasing marginal impatience," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1881-1898, August.
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    Cited by:
    1. Taketo Kawagishi & Kazuo Mino, 2013. "Time Preference and Income Convergence in a Dynamic Heckscher-Ohlin Model," KIER Working Papers 880, Kyoto University, Institute of Economic Research.

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