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Capital Accumulation Game with Quasi-Geometric Discounting and Consumption Externalities

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  • Koichi Futagami

    (Graduate School of Economics, Osaka University)

  • Yuta Nakabo

    (Faculty of Sociology, Nara University)

Abstract

This study introduces quasi-geometric discounting into a simple growth model of common capital accumulation that takes consumption externalities into account. We examine how present bias affects economic growth and welfare, and we consider two equilibrium concepts: the noncooperative Nash equilibrium (NNE) and the cooperative equilibrium (CE). We show that the growth rate in the NNE can be higher than that in the CE if individuals strongly admire the consumption of others regardless of the magnitude of present bias. Contrary to the results in the time-consistent case, we show that, when present bias is incorporated, the welfare level in the NNE can be higher than that in the CE in the initial period. However, in later periods, this relationship can be reversed depending on the difference in the speed of capital accumulation.

Suggested Citation

  • Koichi Futagami & Yuta Nakabo, 2018. "Capital Accumulation Game with Quasi-Geometric Discounting and Consumption Externalities," Discussion Papers in Economics and Business 18-11, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1811
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    More about this item

    Keywords

    Capital accumulation game; Quasi-geometric discounting; Consumption externalities;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices

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