SUBSTITUTION AND REVENUE EFFECTS WITH ENDOGENOUS IMPATIENCE

Abstract

Building on a nonlinear additively separable representation for the generator of preferences, this article provides an extensive characterization of intertemporal consumption—leisure arbitrages with an endogenous measure of impatience. A joint characterization of the comparative dynamics of consumption and leisure is undertaken. An analytical approach first puts in evidence a classical Slutsky decomposition between revenue and substitution effects after various perturbations. Those conclusions are at a second stage illustrated by a three-dimensional geometric argument.