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Socially determined time preference in discrete time

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  • Gomes, Orlando

Abstract

The aim of the paper is to develop a discrete time version of a one-sector optimal growth model with endogenous time preference. The intertemporal discount rate is determined by social factors (i.e., factors that are external to the individual agent), namely the economy wide levels of consumption and income. In continuous time, the combined effect of the previous factors is known to eventually produce local indeterminacy, instead of the well known saddle-path equilibrium of the standard Ramsey model. In discrete time, the possibility of local indeterminacy is explored under several types of Ramsey models with endogenous time preference: neo-classical and endogenous growth models, and models with production externalities and endogenous labor supply. Besides finding various possibilities regarding local dynamics, we also find that one of the models can give place to endogenous fluctuations, although this occurs only under rather exceptional circumstances.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3442.

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Date of creation: Jun 2007
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Handle: RePEc:pra:mprapa:3442

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Keywords: Endogenous time preference; Growth models; Stability analysis; Technological externalities; Endogenous labor supply;

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  1. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  2. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
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  9. Stephanie Schmitt-Grohe, 1999. "Endogenous business cycles and the dynamics of output, hours, and consumption," Departmental Working Papers 199915, Rutgers University, Department of Economics.
  10. Jang-Ting Guo & Kevin Lansing, 1999. "Fiscal policy, increasing returns, and endogenous fluctuations," Working Papers in Applied Economic Theory 99-08, Federal Reserve Bank of San Francisco.
  11. Jordi Caballé & Xavier Jarque & Elisabetta Michetti, 2004. "Chaotic Dynamics in Credit Constrained Emerging Economies," Working Papers 121, Barcelona Graduate School of Economics.
  12. Jean-Pierre Drugeon, 1998. "A model with endogenously determined cycles, discounting and growth," Economic Theory, Springer, vol. 12(2), pages 349-369.
  13. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February.
  14. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  15. Robert J. Barro, 1999. "Ramsey Meets Laibson In The Neoclassical Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1125-1152, November.
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