Heterogeneous Impatience of Individual Consumers and Decreasing Impatience of the Representative Consumer

Abstract

In a continuous-time equilibrium model of heterogeneous consumers, we formulate and prove the statement that the more heterogeneous the consumers are in their impatience, the more dynamically consistent the representative consumer is. We apply this result to interest rate models, and, in particular, accommodate heterogeneous impatience in the model of Cox, Ingersoll, and Ross (1985) to come up with a new form of short-rate processes.