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Some Implications of a Variable EIS

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  • Christopher Bliss

    () (Nuffield College, Oxford University, UK)

Abstract

The paper examines some implications of the wholly reasonable assumption that the elasticity of intertemporal substitution (the EIS) increases with the level of consumption. Then the rich find it easier to substitute future consumption for present consumption than do the poor. In the empirical macro-economics literature the same assumption has been employed and vindicated in cross-section analysis by Attansio and Browning (1995). Here the approach is to build theoretical models of two kinds of poverty traps. A family of explicit direct utility functions that yield the required property is exhibited. Members of this family can give weak b-convergence in a Ramsey-style growth model, or multiple stable solutions in the Diamond capital model. The last finding is in strong contrast to the monograph De La Croix (2002), which leaves the impression that multiple stable solutions are unlikely.

Suggested Citation

  • Christopher Bliss, 2004. "Some Implications of a Variable EIS," Economics Papers 2004-W26, Economics Group, Nuffield College, University of Oxford.
  • Handle: RePEc:nuf:econwp:0426
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    File URL: http://www.nuff.ox.ac.uk/economics/papers/2004/w26/EIS2.pdf
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    Cited by:

    1. Kraay, Aart & Raddatz, Claudio, 2007. "Poverty traps, aid, and growth," Journal of Development Economics, Elsevier, vol. 82(2), pages 315-347, March.
    2. Orlando Gomes, 2009. "Stability Analysis in a Monetary Model With a Varying Intertemporal Elasticity of Substitution," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(2), pages 32-41, May.
    3. Lybbert, Travis J. & McPeak, John, 2012. "Risk and intertemporal substitution: Livestock portfolios and off-take among Kenyan pastoralists," Journal of Development Economics, Elsevier, vol. 97(2), pages 415-426.

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