THE NEOCLASSICAL GROWTH MODEL WITH HETEROGENOUS QUASI-GEOMETRIC CONSUMERS

This paper studies how the assumption of quasi-geometric (quasi-hyperbolic) discounting affects the individual consumption-savings behavior in the context of the standard one-sector neoclassical growth model with heterogeneous agents. The agents are subject to idiosyncratic shocks and face borrowing constraints. We confine attention to an interior Markov recursive equilibrium. The consequence of quasi-geometric discounting is that the effective discount factor of an agent is not a constant, but an endogenous variable which depends on the agent's current state. We show, both analytically and by simulation, that this feature of the model can significantly affect its distributional implications.