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Capital Accumulation And Present-biased Preference

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  • Wang Peng

    (Institute for Advanced Studies, Wuhan University)

  • Heng-fu Zou

    (Institute for Advanced Studies, Wuhan University
    CEMA in Central University of Finance and Economics)

Abstract

This paper reexamines the capital accumulation within a neo-classical growth model under the assumption of hyperbolic discounting as well as endogenous preference, finding that 1) two kinds of Naifs¡¯ behavior coincides under log utility; 2) increasing marginal impatience due to capital accumulation itself will negatively affect the steady state locus of consumption and capital; 3) the effect of hyperbolic settings through effective rate of preference is still ambiguous; 4) we prove the saddle-point equilibrium property for the steady state under various assumptions about individual¡¯s preference. Our model also justifies Max Weber's idea that although spirit of capitalism is an engine to capital accumulation, the subsequent growing wealth will damage this engine.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 531.

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Length: 22 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:cuf:wpaper:531

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Web page: http://cema.cufe.edu.cn/
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Keywords: hyperbolic discounting; time-inconsistent; capital accumulation; spirit of capitalism;

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  1. Heng-fu Zou, 1995. "The spirit of capitalism and savings behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 131-143, September.
  2. Carrillo, Juan D & Mariotti, Thomas, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 529-44, July.
  3. David I. Laibson, 1996. "Hyperbolic Discount Functions, Undersaving, and Savings Policy," NBER Working Papers 5635, National Bureau of Economic Research, Inc.
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