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Consumption--Savings Decisions with Quasi--Geometric Discounting

Author

Listed:
  • Per Krusell

    (University of Rochester, NY, U.S.A., and Centre for Economic Policy Research, and the Institute for International Economic Studies)

  • Anthony A. Smith, Jr.

    (Carnegie Mellon University Pittsburgh, U.S.A.)

Abstract

How do individuals with time-inconsistent preferences make consumption-savings decisions? We try to answer this question by considering the simplest possible form of consumption-savings problem, assuming that discounting is quasi-geometric. A solution to the decision problem is then a subgame-perfect equilibrium of a dynamic game between the individual's ?successive selves?. When the time horizon is finite, our question has a well-defined answer in terms of primitives. When the time horizon is infinite, we are left without a sharp answer: we cannot rule out the possibility that two identical individuals in the exact same situation make different decisions! In particular, there is a continuum of dynamic equilibria even if we restrict attention to equilibria where current consumption decisions depend only on current wealth.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Per Krusell & Anthony A. Smith, Jr., 2003. "Consumption--Savings Decisions with Quasi--Geometric Discounting," Econometrica, Econometric Society, vol. 71(1), pages 365-375, January.
    • Handle: RePEc:ecm:emetrp:v:71:y:2003:i:1:p:365-375
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    References listed on IDEAS

    as
    1. Geir B. Asheim, 1997. "Individual and Collective Time-Consistency," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(3), pages 427-443.
    2. Jose-Victor Rios-Rull & Per Krusell, 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, American Economic Association, vol. 89(5), pages 1156-1181, December.
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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