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

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  • Bertrand Wigniolle

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

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 behavior. 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. The savings function may undergo jumps and non-monotonicities when the income or the interest rate reaches a threshold value. These ''anomalies'' may exist even for reasonable parameter values.

Suggested Citation

  • Bertrand Wigniolle, 2012. "Savings behavior with imperfect capital markets: when hyperbolic discounting leads to discontinuous strategies," Post-Print halshs-00684210, HAL.
    • Handle: RePEc:hal:journl:halshs-00684210
    DOI: 10.1016/j.econlet.2012.02.014
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00684210v1
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    Cited by:

    1. Wigniolle, Bertrand, 2012. "Savings behavior with imperfect capital markets: When hyperbolic discounting leads to discontinuous strategies," Economics Letters, Elsevier, vol. 116(2), pages 186-189.
    2. Wigniolle, Bertrand, 2013. "Fertility in the absence of self-control," Mathematical Social Sciences, Elsevier, vol. 66(1), pages 71-86.
    3. Lu, Yang & Wu, Dongmei & Zhuang, Xintian, 2016. "Part-whole bias in intertemporal choice: An empirical study of additive assumption," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 463(C), pages 231-235.
    4. Lu, Yang & Zhuang, Xintian, 2014. "The impact of gender and working experience on intertemporal choices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 409(C), pages 146-153.
    5. repec:hal:pseose:halshs-00823264 is not listed on IDEAS

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    Keywords

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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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