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Endogenous time preference, investment externalities, and equilibrium indeterminacy


  • Kawagishi, Taketo


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.

Suggested Citation

  • Kawagishi, Taketo, 2012. "Endogenous time preference, investment externalities, and equilibrium indeterminacy," Mathematical Social Sciences, Elsevier, vol. 64(3), pages 234-241.
  • Handle: RePEc:eee:matsoc:v:64:y:2012:i:3:p:234-241 DOI: 10.1016/j.mathsocsci.2012.02.005

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    References listed on IDEAS

    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Chen, Been-Lon & Hsu, Mei, 2007. "Admiration is a source of indeterminacy," Economics Letters, Elsevier, vol. 95(1), pages 96-103, April.
    3. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June.
    4. Gary S. Becker & Casey B. Mulligan, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 729-758.
    5. Fwu-Ranq Chang, 2009. "Optimal growth and impatience: A phase diagram analysis," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(2), pages 245-255.
    6. Yasuhiro Nakamoto, 2009. "Consumption externalities with endogenous time preference," Journal of Economics, Springer, vol. 96(1), pages 41-62, January.
    7. Fumio Hayashi, 1985. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1083-1113.
    8. Michael Stern, 2006. "Endogenous time preference and optimal growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(1), pages 49-70, September.
    9. Epstein, Larry G., 1983. "Stationary cardinal utility and optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 31(1), pages 133-152, October.
    10. Das, Mausumi, 2003. "Optimal growth with decreasing marginal impatience," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1881-1898, August.
    11. Liu, Wen-Fang & Turnovsky, Stephen J., 2005. "Consumption externalities, production externalities, and long-run macroeconomic efficiency," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1097-1129, June.
    12. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February.
    13. Heaton, John, 1993. "The Interaction between Time-Nonseparable Preferences and Time Aggregation," Econometrica, Econometric Society, vol. 61(2), pages 353-385, March.
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    Cited by:

    1. Taketo Kawagishi & Kazuo Mino, 2016. "Time Preference and Income Convergence in a Dynamic Heckscher–Ohlin Model," Review of International Economics, Wiley Blackwell, vol. 24(3), pages 592-603, August.
    2. Kawagishi, Taketo, 2014. "Investment for patience in an endogenous growth model," Economic Modelling, Elsevier, vol. 42(C), pages 508-515.

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