Myopia and Inconsistency in the Neoclassical Growth Model
AbstractThe 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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Date of creation: Dec 1997
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- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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