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Optimal consumption choice with intolerance for declining standard of living

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Author Info
Frank Riedel () (Institute of Mathematical Economics, Bielefeld University)

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Abstract

Duesenberry introduced the notion of a ratchet investor who does not tolerate any decline in her consumption rate. We connect the demand behavior of such an agent to the behavior of standard time-additive agents. A ratchet investor demands the running maximum of the optimal plan a conventional time-additive investor with lower initial wealth would choose.

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File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-394.pdf
File Format: application/pdf
File Function: First version, 2007
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Publisher Info
Paper provided by Bielefeld University, Institute of Mathematical Economics in its series Working Papers with number 394.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 14 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:bie:wpaper:394

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Postal: Postfach 10 01 31, 33501 Bielefeld
Web page: http://www.imw.uni-bielefeld.de/
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Related research
Keywords: intertemporal consumption choice; habit formation; non-time separable utility;

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Frank Riedel & Peter Bank, 2001. "Existence and structure of stochastic equilibria with intertemporal substitution," Finance and Stochastics, Springer, vol. 5(4), pages 487-509. [Downloadable!] (restricted)
    Other versions:
  2. Cox, John C. & Huang, Chi-fu, 1989. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Journal of Economic Theory, Elsevier, vol. 49(1), pages 33-83, October. [Downloadable!] (restricted)
  3. Back, Kerry, 1991. "Asset pricing for general processes," Journal of Mathematical Economics, Elsevier, vol. 20(4), pages 371-395. [Downloadable!] (restricted)
  4. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-43, June. [Downloadable!] (restricted)
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Statistics
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This page was last updated on 2009-12-3.

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