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On discounting and voting in a simple growth model

Listed author(s):
  • Borissov, Kirill
  • Pakhnin, Mikhail
  • Puppe, Clemens

In dynamic resource allocation models, the non-existence of voting equilibria is a generic phenomenon due to the multi-dimensionality of the choice space even with agents heterogeneous only in their discount factors. Nevertheless, at each point of time there may exist a "median voter" whose preferred instantaneous consumption rate is supported by a majority of agents. Based on this observation, we propose an institutional setup ("intertemporal majority voting") in a Ramsey-type growth model with common consumption and heterogeneous agents, and show that it provides a microfoundation of the choice of the optimal consumption stream of the median agent. While the corresponding intertemporal consumption stream is in general not a Condorcet winner among all feasible paths, its induced instantaneous consumption rate receives a majority at each point in time in the proposed intertemporal majority voting procedure. We also provide a characterization of balanced-growth and steady-state voting equilibria in the case in which agents may differ not only in their time preference, but also in their instantaneous utility functions.

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Paper provided by Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering in its series Working Paper Series in Economics with number 77.

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Date of creation: 2015
Handle: RePEc:zbw:kitwps:77
Contact details of provider: Web page: http://www.wiwi.kit.edu/

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