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

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  • Bertrand Wigniolle

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

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

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00684210.

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Date of creation: Aug 2012
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Publication status: Published, Economics Letters, 2012, 116, 2, 186-189
Handle: RePEc:hal:cesptp:halshs-00684210

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00684210
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Keywords: Quasi-hyperbolic preferences; No-borrowing constraint; Discontinuous strategies;

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  1. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  2. Bertrand Wigniolle, 2012. "Savings behavior with imperfect capital markets: when hyperbolic discounting leads to discontinuous strategies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00684210, HAL.
  3. repec:hal:journl:halshs-00594060 is not listed on IDEAS
  4. Bertrand Wigniolle, 2008. "Fertility in the absence of self-control," Documents de travail du Centre d'Economie de la Sorbonne v08068, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
  6. 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.
  7. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
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Cited by:
  1. Bertrand Wigniolle, 2011. "Savings behavior with imperfect capital markets : when hyperbolic discounting leads to discontinuous strategies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00594060, HAL.
  2. Bertrand Wigniolle, 2008. "Fertility in the absence of self-control," Documents de travail du Centre d'Economie de la Sorbonne v08068, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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