We present a model in which two of the most important features of the long-run growth process are reconciled: the massive changes in the structure of production and employment; and the Kaldor facts of economic growth. We assume that households expand their consumption along a hierarchy of needs and firms introduce continuously new products. In equilibrium industries with an expanding and those ...

Does experimental evidence of the common difference effect imply that intertemporal preferences are time inconsistent? Do these features of choice suggest inherent characteristics of preferences, or could they be traced to an underlying factor that shapes the environment? The effect of uncertain lifetime on intertemporal preferences is studied. A demographic model that allows for unobservable h...

Insurance has an intertemporal aspect as insurance premia have to be paid upfront. We argue that the financing aspect of insurance is key to understanding basic insurance patterns. In a model with limited enforcement, we show that insurance is globally monotone increasing in household net worth and income, incomplete, and precautionary. These results hold in economies with income risk, durable ...

We consider lifetime health insurance contracts in which ageing provisions are used to smooth the premium profile. The capital stock accumulated for each individual can be decomposed into two parts: a premium insurance and an annuitised life insurance, only the latter being transferable between insurers without triggering premium changes through risk segmentation. In a simulation based on Germa...

Behavioral economics struggles to explain why people sometimes evaluate outcomes separately (narrow bracketing of mental accounts) and sometimes jointly (broad bracketing). We develop a theory of endogenous bracketing, where people set goals to tackle self-control problems. Goals induce reference points that make substandard performance painful. Evaluating goals in a broadly bracketed mental ac...

In this paper we examine how increases in intertemporal price uncertainty affect the welfare of a consumer. In the preference structure of the consumer the coefficient of relative risk aversion and the elasticity of intertemporal substitution (EIS) are parametrically independent. We find that under empirically plausible circumstances, for each given degree of risk aversion an increase in price ...

A univariate real-valued function is said to be completely monotone if it takes positive values and alternate the signs of its higher order derivatives, starting from everywhere negative first derivatives. We prove that the representative consumer’s discount factor of a continuous-time economy under uncertainty is a power function of some completely monotone function of time satisfying certain ...

Using students’ predicted and unpredicted delays in midterm preparation as measures of time-inconsistency and self-awareness, this paper shows that time-inconsistent behavior is associated with inferior class performance. Most students showed some time-inconsistency. Most were at least partially aware of their time-inconsistency. Despite full awareness, the sophisticates still under-performed i...

A decision maker with time consistent preferences may exhibit diminishing impatience, when uncertain lifetime is accounted for. Uncertain lifetime captures not only the risk of mortality, but also the possibility that a promise for a delayed reward might be breached, or a postponed consumption might not be realized. The restrictions that time consistency imposes on additive intertemporal prefer...

In this paper we study the implications of population ageing in an economy with a sizeable non-traded goods sector. To this effect a highly stylized micro-founded macro model is constructed in which the age structure of the population plays a non-trivial role. The model distinguishes separate birth and death probabilities (thus allowing for net population change), allows for age-dependent labou...