Short-Run Patience and Wealth Inequality

The quasi-geometric (hyperbolic) literature typically assumes that agents are short-run impatient. In this paper, we deviate from this assumption by considering an economy in which a fraction of the population is short-run patient and the remaining population is short-run impatient. In a calibrated version of a neoclassical growth model with uninsurable risk and liquidity constraints, we find that the presence of few short-run patient and many short-run impatient agents leads to empirically plausible degrees of wealth inequality. ∗Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Campus San Vicente del Raspeig, Ap. Correos 99, 03080 Alicante, Spain. E-mails: [email protected], [email protected]. We thank an anonymous referee and the editor for valuable comments and suggestions, many of which we literally inserted in the text. Any errors are the sole responsibility of the authors. This research was partially supported by the Instituto Valenciano de Investigaciones Economicas, Generalitat Valenciana, the Ministerio de Educacion, Cultura y Deporte, SEJ2004-08011ECON and the Ramon y Cajal program.