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Endogenous discounting and the domain of the felicity function

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  • Schumacher, Ingmar

Abstract

The objective is to show that endogenous discounting models should use a felicity function constrained to a positive domain. A variety of articles use the Mangasarian or Arrow and Kurz condition as a sufficient condition for optimality, which restricts felicity to a negative domain. Since the level of the felicity function shows up in the optimal path it leads to qualitatively different solutions when one uses a negative or positive felicity function. We suggest reasons why the domain should be positive. We furthermore derive sufficiency conditions for concavity of a transformed Hamiltonian if the felicity function is assumed to be positive.

Suggested Citation

  • Schumacher, Ingmar, 2011. "Endogenous discounting and the domain of the felicity function," Economic Modelling, Elsevier, vol. 28(1-2), pages 574-581, January.
    • Handle: RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:574-581
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    1. Schumacher, Ingmar, 2009. "Endogenous discounting via wealth, twin-peaks and the role of technology," Economics Letters, Elsevier, vol. 103(2), pages 78-80, May.
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    Cited by:

    1. Schumacher, Ingmar, 2009. "Endogenous discounting via wealth, twin-peaks and the role of technology," Economics Letters, Elsevier, vol. 103(2), pages 78-80, May.
    2. Hirose, K. & Ikeda, Shinsuke, 2015. "Decreasing marginal impatience destabilizes multi-country economies," Economic Modelling, Elsevier, vol. 50(C), pages 237-244.
    3. Raouf Boucekkine & Blanca Martínez & José Ramón Ruiz-Tamarit, 2017. "Optimal Population Growth as an Endogenous Discounting Problem: The Ramsey Case," AMSE Working Papers 1731, Aix-Marseille School of Economics, Marseille, France.
    4. Kawagishi, Taketo, 2014. "Investment for patience in an endogenous growth model," Economic Modelling, Elsevier, vol. 42(C), pages 508-515.
    5. Schumacher, Ingmar, 2013. "Political stability, corruption and trust in politicians," Economic Modelling, Elsevier, vol. 31(C), pages 359-369.
    6. Camacho, Carmen & Saglam, Cagri & Turan, Agah, 2013. "Strategic interaction and dynamics under endogenous time preference," Journal of Mathematical Economics, Elsevier, vol. 49(4), pages 291-301.
    7. Six, M. & Wirl, F., 2015. "Optimal pollution management when discount rates are endogenous," Resource and Energy Economics, Elsevier, vol. 42(C), pages 53-70.
    8. repec:eee:mateco:v:73:y:2017:i:c:p:34-43 is not listed on IDEAS

    More about this item

    Keywords

    Endogenous time preference Optimality Recursive utility Felicity;

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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