Research

How does being time-inconsistent affect economic growth, the extraction of natural resources, and pollution dynamics? Time-inconsistency, characterized by non-constant discounting, can fundamentally alter long-run economic and environmental outcomes. In this paper, we develop an endogenous growth model that integrates exhaustible natural resources and pollution is a byproduct of the economic activity. By focusing on naive agents, who procrastinate under a general discount function, we contrast these dynamics with those obtained under conventional time-consistent exponential discounting. Our analysis reveals that an economy composed of households with a constant elasticity of intertemporal substitution (CEIS) below (above) one experiences lower (higher) economic growth, engages in more (less) aggressive resource extraction, and pursues technological innovation at a slower (faster) pace. These results highlight the crucial role of time-inconsistent  behavior in shaping both economic development and the dynamics of the environment.

We study a dynamic game model to explore how "status concerns" and environmental awareness shape countries' decisions to extract a common poll renewable resource under autarky and free trade. In the autarky regime, each country sells exclusively into its own domestic market, while in the free-trade regime, both harvests meet a single integrated market. Beyond standard profit motives, each player has now "status concerns" -caring about both extraction and profits relative to the other- and an "environmental-awareness" concern for the remaining stock. By analyzing symmetric and heterogeneous agents representing countries, we show new insights into the role of status concerns in shaping strategic decision-making. This richer preference structure generates a new stable steady state -the "Natural Resource Poverty Trap"- when countries operate under autarky and shows that market integration can, under certain circumstances, boost total welfare for both players, while decreases under other circumstances. Under the heterogeneous scenario, the efficient player extracts more resources than the inefficient one and has higher levels of consumer and producer surplus. Our analysis highlights the importance of considering these behavioral factors when developing policies related to renewable resource extraction, trade, and sustainable development. 

A two-stage non-standard optimal control problem with time inconsistent preferences is studied. In an infinite horizon setting, a time consistent (sophisticated) decision maker chooses the time of switching between two consecutive regimes. The second regime corresponds to the implementation of a new technology, and a cost must be paid at the switching time. Although the problem is formulated for a general discount function, special attention is devoted to models with nonconstant discounting and heterogeneous discounting. The problem is solved by transforming it into a problem in a finite horizon and free terminal time. The corresponding dynamic programming equations are presented, and conditions for the derivation of the switching time by decision makers with different degrees of sophistication are studied. A resource extraction model with technology adoption is solved in detail. Effects of the adoption of different discount functions are illustrated numerically