RATE OF TIME PREFERENCE, INTERTEMPORAL ELASTICITY OF SUBSTITUTION, AND LEVEL OF WEALTH

The rate of time preference (RTP) and the intertemporal elasticity of substitution (IES) are two important factors shaping intertemporal con sumption decisions. Models in which the RTP and/or the IES differ syst ematically between rich and poor households have different empirical a nd policy implications for economic development growth, and the distri bution of income and consumption from those of standard models in whic h these parameters are constant across households. La this paper, we e stimate a model in which both RTP and ZES are allowed to differ across rich and poor households using household-level panel data from India. Our empirical results are consistent with the view that the RTP is co nstant across poor and rich households, but the IES is larger for the rich than it is for the poor.