Strategic Growth with Recursive Preferences: Decreasing Marginal Impatience

TL;DR

This paper examines how recursive preferences with decreasing marginal impatience influence strategic growth and equilibrium stability in a two-agent capital accumulation model under different information structures.

Contribution

It introduces a novel analysis of equilibria with recursive utility and decreasing impatience, comparing precommitment and Markovian strategies in dynamic growth models.

Findings

Precommitment equilibria exhibit monotone convergence.

Markovian equilibria can have nonmonotonic long-run paths.

Existence and stability conditions for equilibria are established.

Abstract

We study the interaction between strategy, heterogeneity and growth in a two-agent model of capital accumulation. Preferences are represented by recursive utility functions with decreasing marginal impatience. The stationary equilibria of this dynamic game are analyzed under two alternative information structures: one in which agents precommit to future actions, and another one where agents use Markovian strategies. In both cases, we develop sufficient conditions to prove the existence of equilibria and characterize their stability properties. The precommitment case is characterized by monotone convergence, but Markovian equilibria may exhibit nonmonotonic paths, even in the long-run.