On decreasing marginal impatience

Abstract

One of the most controversial assumptions in endogenous time preference theory is that the degree of impatience is marginally increasing in wealth. We examine the implications of an empirically more relevant specification whereby time preference exhibits decreasing marginal impatience (DMI). With DMI, there are multiple steady-state non-satiated and satiated equilibria. In a constant interest rate economy, the non-satiated steady-state point is necessarily unstable. In a capital economy with decreasing returns technology, both the non-satiated and satiated steady-state points can be saddlepoint stable. The model is used to examine policy implications for the effects of capital taxation and government spending.