Endogenous Discounting and Global Indeterminacy

Giovanni Bella

Department of Economics and Business, Cagliari, Italy.

DOI: 10.4236/me.2013.411080                

Abstract

This paper innovates the literature on endogenous discounting in environmental economics, by studying the global properties of the equilibrium outside the small neighborhood of the steady state. The internalization of individual consumption in the social discount rate is rich of powerful consequences from the economic point of view, for it leads to a qualitative change in the steady state and its transitional dynamics, so that the perfect foresight equilibrium may not be unique, and thus both local and global indeterminacy can eventually emerge. The main implication for decision making is that if indeterminacy occurs, public policies become not sufficient to drive the economy towards the long-run equilibrium. In particular, we show that the onset of parametric restrictions for which both global indeterminacy in the full R3 vector field, and a quasi-periodic dynamics with trajectories wrapped around an invariant torus, may eventually emerge.

Keywords

Endogenous Discounting; Global Indeterminacy; Pitchfork-Hopf Bifurcation

Conflicts of Interest

The authors declare no conflicts of interest.

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