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Hyperbolic Discounting, Labour Supply, and Growth

In: Social and Behavioural Macroeconomics

Author

Listed:
  • Christopher Tsoukis

    (Keele University)

  • Frédéric Tournemaine

    (Chulalongkorn University)

  • Edward John Driffill

    (Yale-NUS College)

Abstract

This Chapter combines “hyperbolic discounting” (HD) with status-seeking and analyses the implications for the rate of growth and for income and wealth distribution. In addition to reviewing the relevant literature, we also derive new results in an otherwise standard intertemporally optimising setup with a CES production function. We propose a model of HD which allows the “present-bias” to be parameterised and contrasts its implications with those of exponential discounting (in continuous time). Any non-exponential discounting scheme implies a time inconsistency of the optimal plan, as a given intertemporal dilemma will receive a different resolution depending on its time-distance from the planning period. As a result, standard intertemporal optimisation methods do not apply. The setup produces a steady-state, balanced-growth path. A rise in exogenous present-bias decreases the growth rate, labour supply and the (neoclassical) government spending multiplier. It also has implications for inequality via the labour share and the “r − g” differential.

Suggested Citation

  • Christopher Tsoukis & Frédéric Tournemaine & Edward John Driffill, 2025. "Hyperbolic Discounting, Labour Supply, and Growth," Springer Books, in: Social and Behavioural Macroeconomics, chapter 0, pages 159-200, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-77748-6_5
    DOI: 10.1007/978-3-031-77748-6_5
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