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Restricted Finite Time Dominance

Author

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  • Nicoleta Anca Matei

    (Department of Economics (University of Verona))

  • Claudio Zoli

    (Department of Economics (University of Verona))

Abstract

We investigate intertemporal dominance conditions for comparisons of finite unidimensional streams of outcomes in discrete time. We follow Ekern's [1981, Time dominance efficiency analysis. Journal of Finance, 36, pp.1023-1034] approach based on unanimous net present value comparisons for classes of discount factors representing temporal preferences. In order to overcome the problem of dictatorship of the present in intertemporal evaluations we restrict the class of discount factors, by imposing a limit on the decrease of the weight attached in the current evaluation, between the outcomes of two future adjacent periods. The restricted time dominance theorems provide parametric dominance conditions that make explicit the policy maker's trade-off between current and future periods. We show that these conditions can be summarized by a single cutoff point that can be interpreted as maximal decrease in the discount factor that guarantees unanimous dominance for the class of intertemporal evaluations considered.

Suggested Citation

  • Nicoleta Anca Matei & Claudio Zoli, 2012. "Restricted Finite Time Dominance," Working Papers 30/2012, University of Verona, Department of Economics.
    • Handle: RePEc:ver:wpaper:30/2012
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    References listed on IDEAS

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    More about this item

    Keywords

    Time Dominance; Discounting; Orderings; Sustainability.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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