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Hyperbolic discounting and endogenous growth

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  • Strulik, Holger

Abstract

This paper provides the closed form solution for the standard model of endogenous growth when consumers have present-biased preferences and make time-inconsistent savings plans, which they revise continuously. It is shown that long-run growth is not necessarily lower under present-biased preferences. In fact, a strong equivalence result holds. If hyperbolic discounting provides the same present value of a constant infinite income stream as standard exponential discounting, then the equilibrium rate of economic growth is also the same under both discounting methods. In this sense present-bias preferences are harmless for economic growth.

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  • Strulik, Holger, 2015. "Hyperbolic discounting and endogenous growth," Economics Letters, Elsevier, vol. 126(C), pages 131-134.
    • Handle: RePEc:eee:ecolet:v:126:y:2015:i:c:p:131-134
    DOI: 10.1016/j.econlet.2014.11.032
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    Cited by:

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    3. Kang, Minwook, 2025. "Endogenous growth driven by government spending under quasi-hyperbolic discounting," Economics Letters, Elsevier, vol. 247(C).
    4. Carles Mañó-Cabello & Jesús Marín-Solano & Jorge Navas, 2021. "A Resource Extraction Model with Technology Adoption under Time Inconsistent Preferences," Mathematics, MDPI, vol. 9(18), pages 1-24, September.
    5. Cabo, Francisco & Martín-Herrán, Guiomar & Martínez-García, María Pilar, 2016. "Unbounded growth in the Neoclassical growth model with non-constant discounting," Mathematical Social Sciences, Elsevier, vol. 84(C), pages 93-104.
    6. Shinya Tsukahara, 2019. "Present bias and endogenous fiscal deficits: Revisiting Woo (2005)," Economics Bulletin, AccessEcon, vol. 39(3), pages 1666-1676.
    7. Johannes Schünemann & Holger Strulik & Timo Trimborn, 2023. "Anticipation of Future Consumption, Excessive Savings, and Long-Run Growth," Economics Working Papers 2023-10, Department of Economics and Business Economics, Aarhus University.
    8. Takayuki Ogawa & Hiroaki Ohno, 2024. "Hyperbolic discounting and state‐dependent commitment," Economica, London School of Economics and Political Science, vol. 91(362), pages 414-445, April.
    9. Kang, Minwook & Kim, Eungsik, 2024. "Present bias and endogenous growth," Economics Letters, Elsevier, vol. 236(C).
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    13. Cabo, Francisco & Martín-Herrán, Guiomar & Martínez-García, María Pilar, 2015. "Non-constant discounting and Ak-type growth models," Economics Letters, Elsevier, vol. 131(C), pages 54-58.

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    More about this item

    Keywords

    Hyperbolic discounting; Time-inconsistency; Endogenous growth;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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