Optimal consumption choice with intolerance for declining standard of living
AbstractDuesenberry 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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Bibliographic InfoPaper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 394.
Length: 14 pages
Date of creation: Sep 2007
Date of revision:
intertemporal consumption choice; habit formation; non-time separable utility;
Other versions of this item:
- Riedel, Frank, 2009. "Optimal consumption choice with intolerance for declining standard of living," Journal of Mathematical Economics, Elsevier, vol. 45(7-8), pages 449-464, July.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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