Endogenous Discounting via Wealth, Twin-Peaks and the Role of Technology
We endogenize the discount rate via wealth and provide evidence that wealth affects the discount rate negatively. We give a necessary and sufficient condition for endogenous discounting to lead to the Twin-Peaks of economic growth and show that improvements in technology help avoid them.
endogenous discounting, Twin-Peaks of economic growth, multiple equilibria.
The articles gives new answers to the following questions : One, what can be potential source of the twin-peaks of economi growth ? Two, why were some of the countries that were believed to belong to the group of low steady state countries (like Taiwan, South Korea, Japan, etc) able to reach a convergence path which led them to a high steady state ? We endogenize the time preference rate via a broad measure of wealth and provide empirical evidence that wealth affects the discount rate negatively. We provide sufficient conditions for multiplicity of equilibria and demonstrate how endogenous discounting via wealth leads to the twin-peaks of economic growth. We prove that improvements in technology can help avoid the Twin-peaks.
Endogenous time preference, Recursive utility, Twin-peaks of economic growth
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