Endogenous discounting and the domain of the felicity function
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.
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Volume (Year): 28 (2011)
Issue (Month): 1-2 (January)
Pages: 574-581
| Handle: | RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:574-581 |
| Contact details of provider: | Web page: http://www.elsevier.com/locate/inca/30411
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References listed on IDEAS
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