RT info:eu-repo/semantics/article
T1 Present bias and the inefficiency of the centralized economy. The role of the elasticity of intertemporal substitution
A1 Cabo García, Francisco José
A1 Martín Herrán, Guiomar
A1 Martínez García, María Pilar
K1 Endogenous growth
K1 Environmental policies
K1 non-constant discounting
K1 social welfare
K1 sustainability
K1 time-consistent solutions
AB We analyze an endogenous growth model considering agents with an isoelastic utility. Preferences are characterized by a utility affected by a negative externality, and a level of impatience which decays with the time distance from the present. Agents who cannot commit the actions of their future selves, play a game against them. The stationary equilibrium of this game defines a balanced growth path with a slower growth when played by subsequent central planners than when played by decision makers in the market economy. First, we prove that the fast growing market economy implies higher welfare if the negative externality is small, while the centralized economy is welfare improving above a given threshold for the externality (obtained for a specific family of non-constant discount functions). Secondly, we observe that this threshold increases with the elasticity of intertemporal substitution in consumption. Therefore, the greater this elasticity the more likely it is that the externality lies below this threshold, where policy interventions would not be adequate. Finally, as one would expect, the range of values of the externality for which the market equilibrium provides higher welfare widens the more different from constant discounting time preferences are, due either to a wider range of variation for the instantaneous discount rates or because these decay more slowly.
PB Elsevier
YR 2020
FD 2020
LK http://uvadoc.uva.es/handle/10324/41007
UL http://uvadoc.uva.es/handle/10324/41007
LA eng
NO Economic Modelling 2020, In Press.
NO Producción Científica
DS UVaDOC
RD 25-nov-2024