Growth dynamics in a model of endogenous time preference

We incorporate endogenous time preference in a simple Diamond-type economy with production and analyze the resulting dynamics both for the competitive and command equilibrium. We assume an individual's rate of time preference is decreasing in consumption (decreasing marginal impatience) and show that this intuitively more appealing assumption is consistent with a stable, non-trivial competitive equilibrium. Analysis of the competitive equilibrium indicates that the observed ‘non-convergence’ of cross-country per capita income could partially be explained by cross-country differences in ‘innate patience’. Examination of the local dynamics around the ‘optimal’ solution suggests that this particular preference structure exhibiting diminishing marginal impatience may generate endogenous business cycle phenomenon.