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Existence, Optimality and Dynamics of Equilibria with Endogenous Time Preference

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Author Info

  • Cuong Le Van

    ()
    (PSE, CNRS, University Paris 1, CES, France.)

  • Cagri Saglam

    ()
    (Department of Economics, Bilkent University, Turkey)

  • Selman Erol

    ()
    (Department of Economics, Bilkent University, Turkey)

Abstract

To account for the development patterns that differ considerably among economies in the long run, a variety of one-sector models that incorporate some degree of market imperfections based on technological external effects and increasing returns have been presented. This paper studies the dynamic implications of, yet another mechanism, the endogenous rate of time preference depending on the stock of capital, in a one-sector growth model. The planner’s problem is presented and the optimal paths are characterized. We show that development or poverty traps can arise even under a strictly convex technology. We also show that even under a convex-concave technology, the optimal path can exhibit global convergence to a unique stationary point. The multipliers system associated with an optimal path is proven to be the supporting price system of a competitive equilibrium under externality and detailed results concerning the properties of optimal (equilibrium) paths are provided. We show that the model exhibits globally monotone capital sequences yielding a richer set of potential dynamics than the classic model with exogenous discounting.

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File URL: http://depocenwp.org/upload/pubs/CuongLeVan/Existence,%20Optimality%20and%20Dynamics%20of%20Equilibria%20with%20Endogenous%20Time%20Preference_DEPOCENWP.pdf
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Bibliographic Info

Paper provided by Development and Policies Research Center (DEPOCEN), Vietnam in its series Working Papers with number 04.

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Length: 39 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:dpc:wpaper:0411

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Keywords: Endogenous time preference; Optimal growth; Competitive equilibrium; Multiple steady-states;

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References

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Cited by:
  1. Kirill Borissov, 2013. "The existence of equilibrium paths in an AK-model with endogenous time preferences and borrowing constraints," EUSP Deparment of Economics Working Paper Series Ec-01/13, European University at St. Petersburg, Department of Economics.
  2. Crettez, Bertrand & Morhaim, Lisa, 2012. "Existence of competitive equilibrium in a non-optimal one-sector economy without conditions on the distorted marginal product of capital," Mathematical Social Sciences, Elsevier, vol. 63(3), pages 197-206.
  3. Taketo Kawagishi & Kazuo Mino, 2012. "Time Preference and Long-Run Growth: the Role of Patience Capital," Economics Bulletin, AccessEcon, vol. 32(4), pages 3243-3249.
  4. Borissov, Kirill, 2013. "Growth and distribution in a model with endogenous time preferences and borrowing constraints," Mathematical Social Sciences, Elsevier, vol. 66(2), pages 117-128.

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