Non-Constant Discounting in Continuous Time
AbstractThis note derives the dynamic programming equation (DPE) to a differentiable Markov Perfect equilibrium in a problem with non-constant discounting and general functional forms. Beginning with a discrete stage model and taking the limit as the length of the stage goes to 0 leads to the DPE corresponding to the continuous time problem. The note discusses the multiplicity of equilibria under non-constant discounting, calculates the bounds of the set of candidate steady states, and Pareto ranks the equilibria.
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Bibliographic InfoPaper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt0nn1t22z.
Date of creation: 11 Jan 2005
Date of revision:
hyperbolic discounting; time consistency; Markov equilibria; non-uniqueness;
Other versions of this item:
- Karp, Larry, 2004. "Non-constant discounting in continuous time," CUDARE Working Paper Series 0969, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Karp, Larry, 2004. "Non-Constant Discounting in Continuous Time," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7pr05084, Department of Agricultural & Resource Economics, UC Berkeley.
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