Substitution Effects in Intertemporal Problems
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Davide Dragone
-
Paolo Vanin
- American Economic Journal: Microeconomics (Forthcoming)
Abstract
We consider a broad class of intertemporal economic problems and
we characterize the short and long-run response of the demand for
a good to a permanent increase in its market price. Depending on
the interplay between self-productivity and time discounting, we
show that dynamic substitution effects can generate price elasticities of opposite sign in the short and in the long run.
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