The discounting rate in this paper is a function of relative consumption and relative capital. The relative consumption (resp. capital) is referred to as the ratio of individual to aggregate consumption (resp. capital). When the discounting rate is increasing in relative consumption, people who consume more than average become more impatient. When the discounting rate is decreasing in relative capital, people who have more capital than average become more patient. Comparing with others matters in a competitive market economy, not in a central planning economy.
The findings of the paper are as follows. 1) When the discounting rate is constant, the social planner solution and the competitive equilibrium are the same, and the BGP is always determinate. 2) When the discounting rate depends only on relative consumption, the BGP is sometimes indeterminate, but it is always the same as the BGP under a constant discounting rate. 3) When the discounting rate depends only on relative capital, a combination of the elasticity of intertemporal substitution and the degree of marginal impatience raises the balanced growth path, higher than the social planning solution. Such a combination however cannot generate sunspot equilibriums. 4) When both relative consumption and capital give an effect on the discounting rate, competitive equilibrium sometimes has the higher BGP than social planning and the BPG sometimes generate sunspot equilibriums. 5) More investigating the relationship among indeterminacy, the elasticity of intertemporal substitution, and the degree of marginal impatience is currently under way.
The implications are as follows. People with an instinct to compare with others have an endogenous discounting rate. Such an instinct affects the economic growth rate in a competitive market economy. A competitive market economy sometimes achieves a higher economic growth than a central planning economy. However, the market economy sometimes fluctuates due to self-fulfilling prophecy or animal spirits.