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Non-constant discounting in continuous time

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  • Karp, Larry

Abstract

This 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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  • Karp, Larry, 2007. "Non-constant discounting in continuous time," Journal of Economic Theory, Elsevier, vol. 132(1), pages 557-568, January.
    • Handle: RePEc:eee:jetheo:v:132:y:2007:i:1:p:557-568
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