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A Model of Human Capital, Time Discounting and Economic Growth

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Abstract

Endogenous time discounting is introduced in a two-period human-capital-driven growth model: subjective discount rate depends upon the level of human capital. This assumption accords strongly with the micro-level evidence. In the model an individual optimizes consumption over two periods. Low human capital societies do not grow fast since high discount rate discourages schooling as the major form of savings. This implication is further reinforced by modeling the efficiency of schooling in the context of population pressure which is also driven by low human capital. The model may produce multiple development regimes and it illustrates wider role of education in tackling possible development traps.

Suggested Citation

  • Michal Bauer & Julie Chytilová, 2008. "A Model of Human Capital, Time Discounting and Economic Growth," Working Papers IES 2008/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2008.
    • Handle: RePEc:fau:wpaper:wp2008_14
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    File URL: http://ies.fsv.cuni.cz/default/file/download/id/8874
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    Cited by:

    1. Wadho, Waqar & Ayaz, Umair, 2017. "Government Size and Economic Growth in an Endogenous Growth Model with Rent-seeking," GLO Discussion Paper Series 131, Global Labor Organization (GLO).
    2. Waqar Wadho & Umair Ayaz, 2018. "Government size and economic growth in an endogenous growth model with rent†seeking," Economics and Politics, Wiley Blackwell, vol. 30(1), pages 151-179, March.
    3. Wadho, Waqar Ahmed & Ayaz, Umair, 2015. "Rent-seeking, Government Size and Economic Growth," MPRA Paper 71213, University Library of Munich, Germany.

    More about this item

    Keywords

    banking; growth; human capital; education; time discounting; discount rate; poverty;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • I2 - Health, Education, and Welfare - - Education
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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