HETEROGENEITY IN THE DEGREE OF QUASI-GEOMETRIC DISCOUNTING: THE DISTRIBUTIONAL IMPLICATIONS

Abstract

This paper modifies the standard one-sector growth model with uninsurable idiosyncratic risk and liquidity constraints to include multiple types of quasi-geometric consumers. For a calibrated version of the model, we show that a modest difference between the quasi-geometric discounting parameters of types can lead to large differences in their marginal propensities to consume. Unlike the standard one-sector growth model, the model with heterogeneous quasi-geometric consumers can generate realistic degrees of wealth inequality.Time inconsistency, quasi-geometric discounting, hyperbolic discounting