Time Preference and the Distributions of Wealth and Income

Suen, Richard M. H. (2010): Time Preference and the Distributions of Wealth and Income.

Abstract

This paper presents a dynamic competitive equilibrium model in which heterogeneity in time preferences alone can generate the observed patterns of wealth and income inequality in the United States. This model generalizes the standard deterministic neoclassical growth model by introducing (i) a direct preference for wealth by the consumers and (ii) human capital formation. The first feature prevents the wealth distribution from collapsing into a degenerate distribution. The second feature generates a strong positive correlation between earnings and wealth across agents. A calibrated version of this model is able to replicate the wealth and income distributions of the United States.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inequality, Heterogeneity, Time Preference, Human Capital
• Subjects: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

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