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The Evolutionary Theory of Time Preferences and Intergenerational Transfers

  • C.Y. Cyrus Chu
  • Hung-Ken Chien
  • Ronald D. Lee

At each age an organism produces energy by foraging and allocates this energy among reproduction, survival, growth, and intergenerational transfers. We characterize the optimal set of allocation decisions that maximizes reproductive fitness. Time preference (the discount rate) is derived from the marginal rate of substitution between energy obtained at two different times or ages in an individual's life, holding reproductive fitness constant. We show that the life history may have an initial immature phase during which there is body growth but no fertility, and a later mature phase with fertility but no growth, as with humans. During the immature phase, time preference depends only on the compounding effect of body growth, much like returns on a capital investment, but not on fertility, or the intrinsic population growth rate. During the mature phase, time preference depends on the costliness of fertility, and on endogenous survival and intrinsic growth rate, and not at all on body growth. During the transition between the two phases, fertility, mortality, body growth, and intrinsic growth rate all matter. Using these results, we conclude that time preference and discount rates are likely to be U-shaped across age. We compare our results to Hansson and Stuart (1990), Rogers (1994, 1997) and Sozou and Seymour (2003). Wastage and inefficiencies aside, in a single sex model a system of intergenerational transfers yields Samuelson's (1958) biological interest rate equal to the population growth rate. When the rate of time preference exceeds this biological rate, inter- generational transfers will raise fitness and evolve through natural selection, partially smoothing out the age variations in time preference.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14185.

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Date of creation: Jul 2008
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Publication status: published as Cyrus Chu, C.Y. & Chien, Hung-Ken & Lee, Ronald D., 2010. "The evolutionary theory of time preferences and intergenerational transfers," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 451-464, December.
Handle: RePEc:nbr:nberwo:14185
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  1. Arthur J. Robson & Balazs Szentes, 2008. "Evolution of Time Preference by Natural Selection: Comment," American Economic Review, American Economic Association, vol. 98(3), pages 1178-88, June.
  2. Arthur J. Robson & Larry Samuelson, 2009. "The Evolution of Time Preference with Aggregate Uncertainty," American Economic Review, American Economic Association, vol. 99(5), pages 1925-53, December.
  3. Hansson, Ingemar & Stuart, Charles, 1990. "Malthusian Selection of Preferences," American Economic Review, American Economic Association, vol. 80(3), pages 529-44, June.
  4. James W. Vaupel & Annette Baudisch & Martin Dölling & Deborah A. Roach & Jutta Gampe, 2004. "The case for negative senescence," MPIDR Working Papers WP-2004-002, Max Planck Institute for Demographic Research, Rostock, Germany.
  5. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  6. Oded Galor & Omer Moav, 2000. "Natural Selection and the Origin of economic Growth," Working Papers 2000-18, Brown University, Department of Economics.
  7. Rogers, Alan R, 1994. "Evolution of Time Preference by Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 460-81, June.
  8. David M. Bishai, 2004. "Does time preference change with age?," Journal of Population Economics, Springer, vol. 17(4), pages 583-602, December.
  9. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
  10. Arthur J. Robson & Hillard S. Kaplan, 2003. "The Evolution of Human Life Expectancy and Intelligence in Hunter-Gatherer Economies," American Economic Review, American Economic Association, vol. 93(1), pages 150-169, March.
  11. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  12. Laitner, John, 1979. "Household Bequests, Perfect Expectations, and the National Distribution of Wealth," Econometrica, Econometric Society, vol. 47(5), pages 1175-93, September.
  13. Galor, Oded & Moav, Omer, 2001. "Evolution and growth," European Economic Review, Elsevier, vol. 45(4-6), pages 718-729, May.
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