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Ashish's Niti

Niti in Sanskrit means policy/strategy/vision. This blog hosts my political views, along with news and commentary. This blog has moved here.

Thursday, April 07, 2005

A bird in mouth is worth two in the refrigerator

There is a good debate going on whether we need time-preference to explain positive interest rates. I think diminishing marginal utility is not sufficient to explain positive interest rates. If present and future are equally well-endowed (thus additional unit of consumption have the same marginal utility today and tomorrow) then time-preference comes into picture. The reason is very simple. You could be dead tomorrow or the goods might get spoiled or looted. A bird in mouth is worth two in the refrigerator.

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