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Present bias and endogenous growth

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  • Kang, Minwook
  • Kim, Eungsik

Abstract

This paper examines the impact of present bias on growth rates by incorporating quasi-hyperbolic discounting preferences into a two-sector endogenous growth model. Our analysis demonstrates that, under equal patience levels as an exponential economy, the quasi-hyperbolic economy exhibits a lower (equal or higher) growth rate compared to the exponential economy if the intertemporal elasticity of substitution (IES) is less than (equal to or greater than) one. We show that physical capital subsidy is ineffective, whereas human capital subsidy can enhance the growth rate.

Suggested Citation

  • Kang, Minwook & Kim, Eungsik, 2024. "Present bias and endogenous growth," Economics Letters, Elsevier, vol. 236(C).
    • Handle: RePEc:eee:ecolet:v:236:y:2024:i:c:s0165176524000405
    DOI: 10.1016/j.econlet.2024.111556
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Present bias; Endogenous growth; Human capital;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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