Optimal Growth with Variable Rate of Time Preference
In this paper we develop a continuous time infinite horizon optimal growth model with identical households, where the households' rate of time preference is endogenously determined. However, unlike the existing literature, we assume here that the instantaneous discount rate of the representative household is negatively related to its current consumption. With this assumption, we analyze the long run dynamic behaviour of the economy. We show that contrary to the general belief, a negative relationship between the instantaneous discount rate and the household's current consumption does not necessarily result in instability of the dynamic system. We derive a set of sufficient conditions for stability and instability in this context. We also show the possible existence of a poverty trap such that if an economy starts with a per capita income below a certain critical minimum value, then it optimally chooses a consumption-accumulation path such that it faces economic retrogression over time.
|Date of creation:||Dec 1999|
|Contact details of provider:|| Postal: Delhi 110 007|
Phone: (011) 27667005
Fax: (011) 27667159
Web page: http://www.cdedse.org/
More information through EDIRC
|Order Information:|| Web: http://www.cdedse.org/ Email: |
When requesting a correction, please mention this item's handle: RePEc:cde:cdewps:70. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sanjeev Sharma)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.