A Path Through the Wilderness: Time Discounting in Growth Models

48 Pages Posted: 13 Nov 2013

See all articles by Pedro Garcia Duarte

Pedro Garcia Duarte

University of São Paulo (FEA-USP) - Department of Economics

Date Written: November 11, 2013

Abstract

Although economists have recognized long ago that "time enters into all economic questions", the ways they treated and modeled time has varied substantially in the last century. While in the 1930s there was a distinctive Cambridge tradition against discounting utilities of future generations, to which Frank Ramsey subscribed, postwar neoclassical growth economists (of the "Ramsey-Cass-Koopmans model") applied the discount factor either to individual’s or to social planner’s decision-making as a technical requirement of dynamic general equilibrium models. My goal in this article is to shed some historical light on how a practice that was condemned as ethically indefensible when applied to intergenerational comparisons became a technical requirement in dynamic models of either a consumer or a planner deciding the intertemporal allocation of resources.

Keywords: time discount, growth models, Ramsey-Cass-Koopmans model, economic dynamics

JEL Classification: B22, B23, E32

Suggested Citation

Garcia Duarte, Pedro, A Path Through the Wilderness: Time Discounting in Growth Models (November 11, 2013). Available at SSRN: https://ssrn.com/abstract=2353855 or http://dx.doi.org/10.2139/ssrn.2353855

Pedro Garcia Duarte (Contact Author)

University of São Paulo (FEA-USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto, 908
Departamento de Economia
Sao Paulo, SP, 05508-010
Brazil

HOME PAGE: http://www.usp.br/feaecon/perfil.php?u=110

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