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Strategic interaction and dynamics under endogenous time preference

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  • Camacho, Carmen
  • Saglam, Cagri
  • Turan, Agah

Abstract

This paper presents a strategic growth model with endogenous time preference. Due to the potential lack of concavity and the differentiability of the value functions associated with each agent’s problem, we employ the theory of monotone comparative statics and supermodular games based on order and monotonicity properties on lattices. In particular, we provide the sufficient conditions of supermodularity for dynamic games with open-loop strategies based on two fundamental elements: the ability to order elements in the strategy space of the agents and the strategic complementarity which implies upward sloping best responses. The supermodular game structure of the model lets us provide the existence and the monotonicity results on the greatest and the least equilibria. We sharpen these results by showing the differentiability of the value function and the uniqueness of the best response correspondences almost everywhere and show that the stationary state Nash equilibria tend to be symmetric. Finally, we numerically analyze to what extent the strategic complementarity inherent in agents’ strategies can alter the convergence results that could have emerged under a single agent optimal growth model. In particular, we show that the initially rich can pull the poor out of the poverty trap even when sustaining a higher level of steady state capital stock for itself.

Suggested Citation

  • Camacho, Carmen & Saglam, Cagri & Turan, Agah, 2013. "Strategic interaction and dynamics under endogenous time preference," Journal of Mathematical Economics, Elsevier, vol. 49(4), pages 291-301.
  • Handle: RePEc:eee:mateco:v:49:y:2013:i:4:p:291-301
    DOI: 10.1016/j.jmateco.2013.05.002
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    References listed on IDEAS

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    11. Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5 Elsevier.
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    Cited by:

    1. Mehmet Özer & Çağrı Sağlam, 2016. "Strategic Interaction And Catching Up," Bulletin of Economic Research, Wiley Blackwell, vol. 68(2), pages 168-181, April.
    2. Luis Alcala & Fernando Tohme & Carlos Dabus, 2016. "Strategic Growth with Recursive Preferences: Decreasing Marginal Impatience," Papers 1608.06959, arXiv.org.

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