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

  • Wigniolle, Bertrand

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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File URL: http://www.sciencedirect.com/science/article/pii/S0165176512000547
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 116 (2012)
Issue (Month): 2 ()
Pages: 186-189

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Handle: RePEc:eee:ecolet:v:116:y:2012:i:2:p:186-189
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Wigniolle, Bertrand, 2012. "Savings behavior with imperfect capital markets: When hyperbolic discounting leads to discontinuous strategies," Economics Letters, Elsevier, vol. 116(2), pages 186-189.
  2. Bertrand Wigniolle, 2011. "Fertility in the absence of self-control," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00565321, HAL.
  3. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  4. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
  5. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
  6. Carlo Favero, 2005. "Consumption, Wealth, the Elasticity of Intertemporal Substitution and Long-Run Stock Market Returns," Working Papers 291, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. repec:hal:journl:halshs-00594060 is not listed on IDEAS
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