A consumption–investment problem with heterogeneous discounting
We analyze a stochastic continuous time model in finite horizon in which the agent discounts the instantaneous utility function and the final function at constant but different discount rates of time preference. Within this framework we can model problems in which, when the time t approaches to the final time, the valuation of the final function increases compared with previous valuations. We study a consumption and portfolio rules problem for CRRA and CARA utility functions for time-consistent agents, and we compare the different equilibria with the time-inconsistent solutions. The introduction of random terminal time is also discussed. Differences with both the mathematical treatment and agent’s behavior in the case of hyperbolic discounting are stressed.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Merton, Robert C., 1971.
"Optimum consumption and portfolio rules in a continuous-time model,"
Journal of Economic Theory,
Elsevier, vol. 3(4), pages 373-413, December.
- R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Martin Browning & Thomas F. Crossley, 2001.
"The Life-Cycle Model of Consumption and Saving,"
Journal of Economic Perspectives,
American Economic Association, vol. 15(3), pages 3-22, Summer.
- Martin Browning & Thomas F. Crossley, 2001. "The lifecycle model of consumption and saving," IFS Working Papers W01/15, Institute for Fiscal Studies.
- Martin Browning & Thomas F. Crossley, 2000. "The Life Cycle Model of Consumption and Saving," Social and Economic Dimensions of an Aging Population Research Papers 28, McMaster University.
- Marín-Solano, Jesús & Navas, Jorge, 2010.
"Consumption and portfolio rules for time-inconsistent investors,"
European Journal of Operational Research,
Elsevier, vol. 201(3), pages 860-872, March.
- Jesus Marin-Solano & Jorge Navas, 2009. "Consumption and Portfolio Rules for Time-Inconsistent Investors," Papers 0901.2484, arXiv.org, revised Mar 2009.
- Serdar Sayman & Ayse Öncüler, 2009. "An Investigation of Time Inconsistency," Management Science, INFORMS, vol. 55(3), pages 470-482, March.
- Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
- Karp, Larry, 2004.
"Non-constant discounting in continuous time,"
CUDARE Working Paper Series
0969, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Karp, Larry, 2004. "Non-Constant Discounting in Continuous Time," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7pr05084, Department of Agricultural & Resource Economics, UC Berkeley.
- Karp, Larry, 2005. "Non-Constant Discounting in Continuous Time," Institute for Research on Labor and Employment, Working Paper Series qt0nn1t22z, Institute of Industrial Relations, UC Berkeley.
- Bleichrodt, Han & Rohde, Kirsten I.M. & Wakker, Peter P., 2009. "Non-hyperbolic time inconsistency," Games and Economic Behavior, Elsevier, vol. 66(1), pages 27-38, May.
When requesting a correction, please mention this item's handle: RePEc:eee:matsoc:v:66:y:2013:i:3:p:221-232. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.