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Unbounded growth in the Neoclassical growth model with non-constant discounting

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  • Cabo, Francisco
  • Martín-Herrán, Guiomar
  • Martínez-García, María Pilar

Abstract

For a Neoclassical growth model, the literature highlights that exponential discounting is observationally equivalent to quasi-hyperbolic discounting, if the instantaneous discount rate decreases asymptotically towards a positive value. Conversely, in this paper a zero long-run value allows a solution without stagnation. We prove that a less than exponential but unbounded growth can be attained, even without technological progress. The growth rate of consumption decreases asymptotically towards zero, although so slowly that consumption grows unboundedly. The asymptotic convergence towards a non-hyperbolic steady-state which saving rate matches the intertemporal elasticity of substitution and the speed of convergence towards this equilibrium are analyzed.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:matsoc:v:84:y:2016:i:c:p:93-104
    DOI: 10.1016/j.mathsocsci.2016.10.001
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    Cited by:

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