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Myopia and Inconsistency in the Neoclassical Growth Model

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  • Robert J. Barro

Abstract

The neoclassical growth model is modified to allow for a non-constant rate of time" preference. If the household cannot commit future choices of consumption and if utility is" logarithmic, then an equilibrium is found that resembles the standard results of the neoclassical" model. In this solution, the effective rate of time preference is high model has potentially important implications for institutional design and other policies because" households would benefit from an ability to commit future consumption there is a sense in" which the results are observationally equivalent to those of the conventional model. When the" framework is extended to allow for partial commitment ability, some testable hypotheses emerge" concerning the link between this ability and the rates of saving and growth. Steady-state results" are obtained for general concave utility functions, and some properties of the dynamic paths are" worked out for the case of isoelastic utility.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6317.

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Date of creation: Dec 1997
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Publication status: published as Barro, Robert J. "Ramsey Meets Laibson In The Neoclassical Growth Model," Quarterly Journal of Economics, 1999, v114(4,Nov), 1125-1152.
Handle: RePEc:nbr:nberwo:6317

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  1. Fishburn, Peter C & Rubinstein, Ariel, 1982. "Time Preference," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 677-94, October.
  2. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
  3. Goldman, Steven M, 1980. "Consistent Plans," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 533-37, April.
  4. Tjalling C. Koopmans, 1959. "Stationary Ordinal Utility and Impatience," Cowles Foundation Discussion Papers 81, Cowles Foundation for Research in Economics, Yale University.
  5. Gary S. Becker & Robert J. Barro, 1986. "A Reformulation of the Economic Theory of Fertility," NBER Working Papers 1793, National Bureau of Economic Research, Inc.
  6. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May.
  7. Epstein, Larry G & Hynes, J Allan, 1983. "The Rate of Time Preference and Dynamic Economic Analysis," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 611-35, August.
  8. Victor R. Fuchs, 1980. "Time Preference and Health: An Exploratory Study," NBER Working Papers 0539, National Bureau of Economic Research, Inc.
  9. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  10. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  11. David I. Laibson, 1996. "Hyperbolic Discount Functions, Undersaving, and Savings Policy," NBER Working Papers 5635, National Bureau of Economic Research, Inc.
  12. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
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Cited by:
  1. Andrea Repetto, 2001. "Incentivos al Ahorro Personal: Lecciones de la Economía del Comportamiento," Documentos de Trabajo 103, Centro de Economía Aplicada, Universidad de Chile.
  2. Maria Lorek, 2013. "Des pôles de croissance vers des systèmes d’innovation territorialisés dans une « nouvelle » économie de marche : le cas de Gdansk, Pologne The poles of growth and conversion of industrial ter," Working Papers 274, Laboratoire de Recherche sur l'Industrie et l'Innovation. ULCO / Research Unit on Industry and Innovation.
  3. David Laibson & Andrea Repetto & Jeremy Tobacman, 2000. "A Debt Puzzle," NBER Working Papers 7879, National Bureau of Economic Research, Inc.
  4. Andrew Caplin & John Leahy, 2000. "The Social Discount Rate," NBER Working Papers 7983, National Bureau of Economic Research, Inc.
  5. Ducla-Soares, Maria M. & Costa-Duarte, Clara & Cunha-e-Sa, Maria A., 2001. "The Hyperbolic Forest Owner," FEUNL Working Paper Series wp405, Universidade Nova de Lisboa, Faculdade de Economia.

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