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Endogenous time preference, investment externalities, and equilibrium indeterminacy

  • Kawagishi, Taketo
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    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165489612000248
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    Article provided by Elsevier in its journal Mathematical Social Sciences.

    Volume (Year): 64 (2012)
    Issue (Month): 3 ()
    Pages: 234-241

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    Handle: RePEc:eee:matsoc:v:64:y:2012:i:3:p:234-241
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505565

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    8. 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.
    9. 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.
    10. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February.
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