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Optimal consumption for recursive preferences with local substitution — the case of certainty

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  • Li, Hanwu
  • Riedel, Frank
  • Yang, Shuzhen

Abstract

We characterize optimal consumption policies in a recursive intertemporal utility framework with local substitution. We establish existence, uniqueness, and a version of the Kuhn–Tucker theorem. The structure of optimal consumption plans is described explicitly for a large class of aggregators. For Epstein-Zin preferences, the solution coincides with the solution of the corresponding time-additive preferences.

Suggested Citation

  • Li, Hanwu & Riedel, Frank & Yang, Shuzhen, 2024. "Optimal consumption for recursive preferences with local substitution — the case of certainty," Journal of Mathematical Economics, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:mateco:v:110:y:2024:i:c:s0304406823001258
    DOI: 10.1016/j.jmateco.2023.102932
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