Endogenous time preference, investment externalities, and equilibrium indeterminacy
This paper analyzes a neoclassical growth model with endogenous time preference. Following Becker and Mulligan (1997), we assume that the household’s subjective discount rate decreases with its investment for patience. Furthermore, we extend the baseline setting by positing that the subjective discount rate depends on the average level of investment for patience in the economy (investment externalities) as well. Under these assumptions and the specification of each function, we show that equilibrium indeterminacy does not arise if investment externalities do not exist, while it can be observed in the presence of investment externalities.
Volume (Year): 64 (2012)
Issue (Month): 3 ()
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