Heterogeneous time preferences and the distribution of wealth

Abstract

This paper shows that when households are heterogeneous with respect to time preference, the capital market functions as a powerful mechanism generating and maintaining a highly skewed distribution of wealth. A simple model of household savings is embedded into (1) a consumption loans economy and (2) a productive capital economy. The robustness of the conclusions is tested by relaxing some of the simplifying assumptions. Various counteracting instruments of social policy are discussed. © 1985.