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Anticipation of Future Consumption, Excessive Savings, and Long-Run Growth

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  • Schünemann, Johannes
  • Strulik, Holger
  • Trimborn, Timo

Abstract

In this paper, we provide a new theory that explains how the anticipation of future consumption leads to excessive savings. We introduce utility from anticipatory consumption into an otherwise standard endogenous growth model and assume that individuals cannot commit to future consumption plans. We show that the associated time-inconsistent decisions lead individuals to save more of their income than planned, and that this behavior increases growth but decreases welfare. We then modify the model to account for time-inconsistent decisions due to hyperbolic discounting, which in and of themselves would result in individuals saving less of their income than planned. By combining the assumptions of anticipatory consumption and hyperbolic discounting, we show that the excessive savings outcome is preserved for the benchmark calibration of the model. We also show that an alternative parameterization of the model exists where hyperbolically discounting individuals stick to their original consumption plan even though there are no commitment devices.
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Suggested Citation

  • Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2024. "Anticipation of Future Consumption, Excessive Savings, and Long-Run Growth," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302398, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc24:302398
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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