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Savings behavior with imperfect capital markets : when hyperbolic discounting leads to discontinuous strategies

  • Bertrand Wigniolle

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

This paper provides a detailed study of a simple life-cycle consumption model with quasi-hyperbolic discounting and an imperfect financial market. It gives a complete characterization of savings behaviors. The joint assumptions of quasi-hyperbolic discount factors and no-borrowing constraints may lead to non-convexities in selves' objective functions that may imply discontinuous equilibrium strategies. Savings function may undergo jumps and non-momotonicities when the income or the interest rate reach a threshold value. These "anomalies" may exist even for reasonable parameters values.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00594060.

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Date of creation: Apr 2011
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Handle: RePEc:hal:cesptp:halshs-00594060
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00594060
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  1. Bertrand Wigniolle, 2008. "Fertility in the absence of self-control," Documents de travail du Centre d'Economie de la Sorbonne v08068, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  3. Bertrand Wigniolle, 2011. "Savings behavior with imperfect capital markets : when hyperbolic discounting leads to discontinuous strategies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00594060, HAL.
  4. Favero, Carlo A., 2005. "Consumption, Wealth, the Elasticity of Intertemporal Substitution and Long-Run Stock Market Returns," CEPR Discussion Papers 5110, C.E.P.R. Discussion Papers.
  5. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
  6. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
  7. repec:hal:journl:halshs-00594060 is not listed on IDEAS
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