Patience and prosperity

This paper introduces wealth-dependent time preference into a simple model of endogenous growth. The model generates adjustment dynamics in line with the historical facts on savings and economic growth in Europe from the High Middle Ages to today. Along a virtuous cycle of development more wealth leads to more patience, which leads to more savings and further increasing wealth. Savings rates and income growth rates are thus jointly increasing during the process of development until they converge towards constants along a balanced growth path. During the transition to modern growth an economy in which the association of wealth and patience is stronger overtakes an otherwise identical economy and generates temporarily diverging growth rates.

[1]  L. Pritchett,et al.  Wealthier is healthier , 1993 .

[2]  Jonathan A. Parker,et al.  Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate , 1999, NBER Macroeconomics Annual.

[3]  David de la Croix,et al.  Wealth Breeds Decline: Reversals of Leadership and Consumption Habits , 2004 .

[4]  M. Das,et al.  Optimal growth with decreasing marginal impatience , 2003 .

[5]  Jose G Montalvo,et al.  The curse of aid , 2006 .

[6]  Sidney Homer,et al.  A History of Interest Rates. , 1964 .

[7]  Christopher D. Carroll,et al.  Comparison Utility in a Growth Model , 1997 .

[8]  Larry E. Jones,et al.  A Convex Model of Equilibrium Growth: Theory and Policy Implications , 1990, Journal of Political Economy.

[9]  S. Michalopoulos,et al.  Darwinian Evolution of Entrepreneurial Spirit and the Process of Development , 2006 .

[10]  Kenneth J. Arrow,et al.  Preference, production, and capital: Time preference, the consumption function, and optimum asset holdings , 1989 .

[11]  A. Maddison,et al.  The World Economy: Historical Statistics , 2003 .

[12]  Donald Grove Barnes,et al.  British Economic Growth 1688-1959 , 1963 .

[13]  James S. Dyer,et al.  Too Much of a Good Thing? , 1999, Oper. Res..

[14]  M. Obstfeld.  Intertemporal Dependence, Impatience, and Dynamics , 1989 .

[15]  Stéphane Lambrecht,et al.  Growth and distribution in an AK-model with endogenous impatience , 2007 .

[16]  Matthias Doepke,et al.  Occupational Choice and the Spirit of Capitalism , 2007 .

[17]  Morten I. Lau,et al.  Eliciting Risk and Time Preferences , 2008 .

[18]  Norman V. Loayza,et al.  What Drives Private Saving Across the World? , 2000, Review of Economics and Statistics.

[19]  H. Strulik,et al.  A Bioeconomic Foundation of the Malthusian Equilibrium: Body Size and Population Size in the Long-Run , 2007 .

[20]  J. G. Hülsmann.  A theory of interest , 2002 .

[21]  T. C. Edens,et al.  Economic Growth , 1957, The Journal of Economic History.

[22]  Alan R. Rogers,et al.  Evolution of Time Preference by Natural Selection , 1994 .

[23]  Norman V. Loayza,et al.  Saving in Developing Countries: An Overview , 2000 .

[24]  H. Strulik.  A NOTE ON ECONOMIC GROWTH WITH SUBSISTENCE CONSUMPTION , 2008, Macroeconomic Dynamics.

[25]  Jeffrey Wagner,et al.  The Moral Consequences of Economic Growth , 2008 .

[26]  Fatih Guvenen,et al.  Reconciling Conflicting Evidence on the Elasticity of Intertemporal Substitution , 2000 .

[27]  D. Weil,et al.  A Contribution to the Empirics of Economic Growth Author ( s ) : , 2008 .

[28]  J. Skinner,et al.  Do the Rich Save More? , 2000 .

[29]  T. Palivos,et al.  On the Existence of Balanced Growth Equilibrium , 1997 .

[30]  A. Maddison,et al.  The World economy :a millennial perspective , 2001 .

[31]  George Leitmann,et al.  Dynamics and Control , 2020, Fundamentals of Robotics.

[32]  A. Falk,et al.  Are Risk Aversion and Impatience Related to Cognitive Ability? , 2007, SSRN Electronic Journal.

[33]  Robert A. Becker,et al.  On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households , 1980 .

[34]  R. Lucas,et al.  SUPPLY-SIDE ECONOMICS: AN ANALYTICAL REVIEW , 1990 .

[35]  P. Mathias,et al.  Capital Formation in the United States during the Nineteenth Century , 1978 .

[36]  Holger Strulik,et al.  Solution of Perfect Foresight Saddlepoint Problems: A Simple Method and Applications , 2002 .

[37]  Christopher D. Carroll,et al.  Saving and Growth with Habit Formation , 2000 .

[38]  C. I. Jones,et al.  Too Much of a Good Thing? The Economics of Investment in R&D , 1999 .

[39]  Shankha Chakraborty,et al.  Mortality, Human Capital and Persistent Inequality , 2003 .

[40]  Andrew A. Samwick.  Discount Rate Heterogeneity and Social Security Reform , 1997 .

[41]  S. Hewa.  Medical technology: A pandora's box? , 1994, The Journal of medical humanities.

[42]  Emily C Lawrance.  Poverty and the Rate of Time Preference: Evidence from Panel Data , 1991, Journal of Political Economy.

[43]  C. Carroll,et al.  Are There Cultural Effects on Saving? Some Cross-Sectional Evidence , 1994 .

[44]  Norman V. Loayza,et al.  What Drives Private Saving Around the World? , 1999 .

[45]  British Economic Growth , 1960, Nature.

[46]  E. Tronci,et al.  1996 , 1997, Affair of the Heart.

[47]  L. Miles,et al.  2000 , 2000, RDH.

[48]  Oded Galor,et al.  From Stagnation to Growth: Unified Growth Theory , 2004 .

[49]  Shankha Chakraborty,et al.  Endogenous lifetime and economic growth , 2004, J. Econ. Theory.

[50]  J. Sarkar.  Growth dynamics in a model of endogenous time preference , 2007 .

[51]  William A. Masters,et al.  Climate and Scale in Economic Growth , 2001 .

[52]  Georgi Smirnov.  Transversality condition for infinite-horizon problems , 1996 .

[53]  H. Strulik,et al.  Population, food, and knowledge: a simple unified growth theory , 2008 .

[54]  Jean-Pierre Drugeon.  Impatience and long-run growth , 1996 .

[55]  Thomas Steger.  Economic Growth with Subsistence Consumption , 2000 .

[56]  Roderick Floud,et al.  The Economic History of Britain since 1700 , 1981 .

[57]  Tiago Cavalcanti,et al.  Religion in macroeconomics: a quantitative analysis of Weber’s thesis , 2007 .

[58]  S. Edwards.  Why are Latin America's savings rates so low? An international comparative analysis , 1996 .

[59]  D. Hibbs,et al.  Biogeography and Long-Run Economic Development , 2000 .

[60]  Larry G. Epstein,et al.  The Rate of Time Preference and Dynamic Economic Analysis , 1983, Journal of Political Economy.

[61]  Chao Qian,et al.  Population , 1940, State Rankings 2020: A Statistical View of America.

[62]  Jeremiah Norris.  A farewell to alms , 2005, BMJ : British Medical Journal.

[63]  Nicholas Crafts,et al.  British Economic Growth during the Industrial Revolution , 1985 .

[64]  Oded Galor,et al.  Natural Selection and the Origin of Economic Growth , 2001 .

[65]  B. Friedman.  The moral consequences of economic growth , 2006 .

[66]  Ingmar Schumacher,et al.  Endogenous discounting via wealth, twin-peaks and the role of technology , 2006 .

[67]  Aart Kraay,et al.  Poverty Traps, Aid, and Growth , 2005 .

[68]  M. Obstfeld.  Intertemporal dependence, impatience, and dynamics☆ , 1990 .

[69]  Phillippe Michel,et al.  On the Transversality Condition in Infinite Horizon Optimal Problems , 1982 .

[70]  Casey B. Mulligan,et al.  The Endogenous Determination of Time Preference , 1997 .

[71]  A. Atkeson,et al.  Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data☆ , 1996 .

[72]  Robert J. Barro,et al.  Economic Growth in a Cross Section of Countries , 1991 .