Present bias and endogenous growth

Minwook Kang, Eungsik Kim

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Article number111556
JournalEconomics Letters
Volume236
DOIs
Publication statusPublished - 2024 Mar

Bibliographical note

Publisher Copyright:
© 2024 The Author(s)

Keywords

  • Endogenous growth
  • Human capital
  • Present bias

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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