Present bias and endogenous growth

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.