Intertemporal substitution is the process of maximizing utility by allocating resources across time. For clarity, the standard analysis focuses on a two-period analysis of the present and the future.
This EconModel application studies three basic cases:
A Simple Endowment - The agent is given a certain amount of wealth in each of the two periods.
Saving for Retirement - A production possibility frontier describes the agent's options with respect to working in each of the two periods. The agent simultaneously decides how much to work in each period and how much to consume in each period.
Investing in Education - A production possibility frontier describes how working less in the first period (the agent's youth) leads to a higher income in the second period (the agent's middle age). Access to financial markets leads students to invest more in education and to attain a higher utility than if they could not borrow money.
Classic Economic Models
Overview of Micro Models
Overview of Macro Models