Consumption-Savings Decisions with Quasi-Geometric Discounting: The Case with a Discrete Domain
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چکیده
How do individuals with time-inconsistent preferences—à la Strotz/Phelps/Pollak/Laibson— make consumption-savings decisions? We try to answer this question by considering the simplest possible form of consumption-savings problem, assuming that discounting is quasigeometric. A solution to the decision problem is then a subgame-perfect equilibrium of a dynamic game between the individual’s “successive selves”. When the time horizon is infinite, we are left without a sharp answer: even when attention is restricted to Markov-perfect equilibria—using the agent’s current wealth as state variable—we cannot rule out the possibility that two identical individuals in the exact same situation make different decisions! This paper deals with a discrete domain for capital, unlike Krusell and Smith (2003), which considers a continuous domain. Per Krusell’s affiliations are Princeton University, Institute for International Economic Studies, Centre for Economic Policy Research, and NBER. Anthony A. Smith, Jr.’s affiliation is Yale University. We would like to thank John H. Boyd III, Faruk Gul, Wolfgang Pesendorfer, and seminar participants at the NBER Summer Institute, Stanford University, and the University of Rochester for helpful comments. Both authors acknowledge financial support from the National Science Foundation.
منابع مشابه
Consumption and Savings Decisions with Quasi-Geometric Discounting
How do individuals with time-inconsistent preferences make consumption-savings decisions? We try to answer this question by considering the simplest possible form of consumption-savings problem, assuming that discounting is quasi-geometric. A solution to the decision problem is then a subgame-perfect equilibrium of a dynamic game between the individual's \successive selves". When the time horiz...
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تاریخ انتشار 2008