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Collective Investment Decision Making with Heterogeneous Time Preferences

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  • Christian Gollier
  • Richard Zeckhauser

Abstract

We examine the investment decision problem of a group whose members have heterogeneous time preferences. In particular, they have different discount factors for utility, possibly not exponential. We characterize the properties of efficient allocations of resources and of shadow prices that would decentralize such allocations. We show in particular that the term structure of interest rates is decreasing when all members have DARA preferences. Heterogeneous groups should not use exponential discounting for their collective investment decisions even if all agents discount exponentially. We also exhibit conditions that lead the representative agent to have a rate of impatience that decreases with GDP per capita.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9629.

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Date of creation: Apr 2003
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Handle: RePEc:nbr:nberwo:9629

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Cited by:
  1. Mohamed Mabrouk, 2005. "Intergenerational anonymity as an alternative to the discounted- sum criterion in the calculus of optimal growth II: Pareto optimality and some economic interpretations," GE, Growth, Math methods, EconWPA 0511007, EconWPA.
  2. Ben Groom & Cameron Hepburn & Phoebe Koundouri & David Pearce, 2005. "Declining Discount Rates: The Long and the Short of it," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 32(4), pages 445-493, December.
  3. Mohamed Mabrouk, 2005. "Intergenerational anonymity as an alternative to the discounted- sum criterion in the calculus of optimal growth I: Consensual optimality," GE, Growth, Math methods, EconWPA 0510013, EconWPA.

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